Police in Bali are investigating after the bodies of an Australian man and his two children were found dead in their bungalow in a popular tourist area.

Damien John Shaw, 56, and his two children, a boy aged six and a girl aged four, were discovered at their home in Kuta on Sunday.

Neighbours checked on the family after the man's wife, who was not in Bali at the time, became concerned following a phone call with her husband. She had reportedly travelled to the capital, Jakarta, in the days prior.

According to police, the wife had called a neighbour after hearing one of her children crying during the call. She was subsequently unable to reach her husband again.

The neighbour, accompanied by other local residents, forced their way into the property after receiving no response to their knocks. The three victims were found inside.

Australian media reported that police were treating the case as a suspected murder-suicide. Police told sources, however, that they had not yet determined the cause or manner of death and that further examinations would be carried out.

Police said Shaw was originally from Fremantle, in Western Australia. Roger Cook, the state's premier, described the news as a "very confronting situation."

"This is a very sad situation; our hearts go out to everyone involved. We hope we can get to the bottom of what's gone on as soon as possible," Cook added.