Bali police have retracted earlier claims that a suspect was arrested after an Australian man was shot dead and another injured during a violent break-in at a Bali villa.

It was initially understood that one person had been taken into custody early on Monday morning, two days after two masked gunmen stormed Villa Casa Santisya in Munggu, in Bali’s Badung Regency, in the early hours of Saturday.

However, Bali authorities have since clarified that no arrest has been made in relation to the alleged gunman.

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Melbourne father Zivan Radmanovic, 32, was fatally shot in the bathroom, as his wife, Jazmyn Gourmdeas, reportedly hid under the covers in bed.

The attackers then forced their way into the neighbouring room, where 34-year-old Melbourne man Sanar Ghanim was staying with his wife.

Ghanim was shot multiple times and rushed to hospital in a seriously condition.

Police later recovered 17 bullet casings, two intact bullets, and 55 projectile fragments from the scene.

Witnesses said the gunmen spoke with strong Australian accents and were wearing a bright orange jacket and a green jacket.

The pair fled the scene on motorbikes and remain at large as of Monday evening.