Mexican authorities have arrested one man and launched an interstate manhunt for another as they investigate the grisly slaying of an elderly Canadian couple.

Eighty-four-year old Edward Kular and 72-year-old Nina Discombe were found lying in a pool of blood Sunday in the living room of the house where they'd lived for at least six months.

The attorney general of Mexico's Jalisco state alleged on Wednesday that two men broke into the couple's home expecting to find them asleep, but became startled when they found the pair awake and killed them both for fear of being recognized.

Luis Najera told The Canadian Press the man who was arrested was the brother of a construction labourer who worked near the Canadians' home.

Najera alleged the labourer had seen the Canadians buy a big-screen TV a few days prior, and allegedly plotted a robbery with his brother, who had just been released from jail.

The suspects broke into the couple's home in the community of Ajijic early in the morning believing Kular and Discombe would still be sleeping, Najera alleged, but instead found them wide awake.

"They were in the living room when they arrived. And when the lady sees the brother, he knows the lady [will] tell … he knows that the lady knows the brother [and] he decides to kill the couple," Najera alleged.

Officials have said Kular was beaten on the head with a small statue while Discombe was stabbed in the stomach with a kitchen knife.

Najera said police are searching for the labourer in a nearby state, while his brother has been charged with murder.

A relative of Kular has said the Toronto man's death is like a "a bad nightmare" for his family.

Discombe was from Ottawa but had purchased a home in Mexico to live there full-time, said Barbara Wills, a friend who also lives in the community of Ajijic.

The area located outside Guadalajara City is popular among snowbirds and several who knew the couple said they were in shock.

With files from The Associated Press