Police believe 31-year-old Justin Stein acted alone in the alleged murder and detectives relied on GPS data and CCTV to find the barrel in bush near the Colo River last night.

The child's body is yet to be formally identified but police say the remains found in the barrel are consistent with Charlise Mutten.

A crime scene has been established and is being examined by specialist forensic officers.

A multi-agency search for Charlise had been underway since last Friday and on Monday, homicide detectives joined the effort.

NSW Police Deputy Commissioner David Hudson said there were multiple inconsistencies with the accused's accounts of what happened before Charlise went missing.

"[His] movements escalated our scrutiny … those included the purchase of a number of 20 kilogram sandbags from a hardware store [and] fuel for a boat," he said.

Deputy Commissioner Hudson said the accused allegedly tried to float a boat at docks in inner Sydney but was unsuccessful as the boat was "inoperable".

After the failed boat launch in Sydney police were able to track the man to the location near the Colo River, about an hour from where Charlise was last seen alive at Mount Wilson.

Court documents revealed police believe the young girl was killed last Thursday. 

Charlise lived with her grandmother at Coolangatta in Queensland, but was holidaying in the Blue Mountains with her mother, Kallista Mutten and her fiance Mr Stein.

The pair were staying at a wedding and function venue when she disappeared last Thursday afternoon.

Kallista suffered a medical episode after her daughter's disappearance, which she is still receiving treatment for in hospital.

It means police have not been able to interview her yet.

"It has been difficult to approach and contact her but at some stage hopefully when doctors allow, we will be talking further with her," Deputy Commissioner Hudson said.

Charlise's biological father took to social media this morning to share his devastation about the loss of his daughter.

"We will get the answers for you baby, and we will honour you properly," he wrote.

"This is not the end of you or your story Charlise."

The barrel has been transported to the Sydney morgue where the coroner will investigate Charlise's cause of death.

Stein was arrested at a unit on Riley Street in Surry Hills, central Sydney, about 8:30pm yesterday and declined to be interviewed by police.

He appeared at Central Local Court this morning where his lawyer told the court his client suffered from long-term mental health issues.

The court heard he had been on medication for mental health issues for years and had concerns for his personal safety in prison.

He didn't apply for bail, which was formally refused.

He will next front Penrith Court in March.

The police investigation, which has involved around 200 officers, continues. 

"We will no leave stone unturned in the search for the truth of this matter," Deputy Commissioner Hudson said.

State Emergency Service and Rural Fire Service volunteers helped with the search effort.

"There are still many elements of this investigation that we have to work through to determine exactly what happened from the time the young girl was reported missing up until last night when those remains were found," NSW Police Commissioner Karen Webb said.

Story By | Paige Cockburn, Sue Daniel & Mark Reddie