An elderly man has died following an alleged dispute over an affair with his neighbour’s wife in Melbourne’s outer east.

Peter Duss, 79, was found dead inside a home on Penhyrn Ave in Croydon about 2.10am on Monday.

WATCH THE VIDEO ABOVE: Deadly neighbour dispute investigated as possible affair murder

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His neighbour, a 57-year-old man, was arrested at the scene and taken to hospital under police guard with upper body injuries.

Police said his injuries were not life-threatening.

Officers believe the two men were known to each other.

Peter Duss has been found dead in a Croydon home. Credit: 7NEWS

A quiet suburban street has been rocked by a deadly apparent dispute between neighbours. Credit: 7NEWS

7NEWS understands detectives are investigating whether the incident stemmed from a dispute over an alleged affair between Duss and the neighbour’s wife.

Duss’ wife has been left devastated by his death and is staying with family while her home remains a crime scene.

She left the property early on Monday wearing only her nightgown, with friends later bringing her clothes.

The death has sent shockwaves through the local community, where Duss had lived for decades.

“I am shocked. I am totally and utterly shocked,” family friend Gillian Bysher said, describing Duss as “nice”.

“It doesn’t seem possible that this has happened to somebody I’ve known for many years.”

A quiet suburban street has been rocked by a deadly dispute between neighbours. Homicide detectives are now investigating whether an affair was the motive for murder. Credit: 7NEWS

Neighbour Peter Molloy said the incident was “very disturbing”.

“A lot of us have been living here for many years. Neighbours are very friendly,” he said.

Detectives are continuing to investigate the circumstances surrounding Duss’s death.

Anyone with information is urged to contact Crime Stoppers.