A South African couple living in Madagascar were bludgeoned to death and their bodies set alight at their up-market island guest lodge.

Dumisani Rasheleng, a South African embassy representative in the capital, Antananarivo, confirmed that the murders of Gareth and Hannetjie Walters were being investigated by the Madagascan police.

"We are aware of it - the investigation is continuing," Rasheleng said, adding that further details would be released when the investigation was complete.

The couple ran a lodge on Sainte Marie Island, off Madagascar's east coast, where they were well known and well liked, said friend and neighbour Ockie Snyman.

Snyman spoke of his ordeal of Friday night when he received a phone call to say the couple's lodge was on fire.

"I was watching the game between France and Uruguay. I got there 45 minutes later and [staff] had found the bodies in the generator room.

"At first I thought maybe the petrol inside had caught alight and killed them. But on a closer look I saw that he had been hit on the head. Then I saw some blood outside the generator room and some of his wife's hair was lying there. Then we put two and two together."

Snyman said the double murder had shocked the small island community, where murders are virtually unknown.

"It just doesn't exist on the island. There is no political or racist motive behind this. It is just bad luck," he said.

He said the couple had recently dismissed some of their staff, who have been taken into custody. But it is unclear whether they were linked to the crime.

Sainte Marie Island is a popular tourist destination with pristine beaches and good diving and fishing sites.

Snyman said about 400 islanders held an all-night vigil on the night of the murder, standing guard over the bodies until the following day.

"I don't feel threatened at all and I don't feel that my life is in danger. It is sad to lose two close friends like that. I had to make the coffins. And a French friend of mine helped me pick up the burned bodies and bury them. That was very emotional, very tough. But life goes on," Snyman said.