After departing Sydney, the SAAB 340B was being radar vectored to intercept the 297 radial whilst maintaining 5,000 ft. The BAE146 was on a right circuit for runway 16R, and had been assigned 6,000 ft. The departures radar controller subsequently noticed the altitude readout of the BAE146 indicating 5,500 ft, and passed traffic information to the SAAB. The BAE146 was then observed to climb back to its assigned altitude. An examination of recorded radar data indicated that the BAE146 had descended to 5,600 ft. As a result, vertical separation between the aircraft was reduced to 600 ft, with a horizontal separation of 1.4 NM. The required minimum separation standard was either 1,000ft vertically, or 3 NM horizontally. The captain of the BAE146 subsequently reported that the first officer was the handling pilot, and was under training at the time of the incident. He had observed the aircraft to descend below the assigned altitude and informed the handling pilot of the error. The aircraft was then climbed back to its assigned altitude.