A noise complaint may have sparked a fatal altercation between two men at Raymond Terrace early on Tuesday.
Ash Morgan, 38, who was armed with an axe, died at the scene.
A 29-year-old man, who was armed with a razor scooter, remained in Maitland hospital on Tuesday afternoon. He has not been charged.
Emergency services were called to Cambridge Avenue about 2am following reports that a man had been found with serious head injuries.
Officers attached to Port Stephens-Hunter Police District arrested the 29-year-old man nearby.
He was taken to Raymond Terrace police station, before being transferred to Maitland Hospital for assessment.
The axe and scooter remained in situ on Tuesday as crime scene detectives attempted to piece together how the incident unfolded.
It is believed Mr Morgan confronted the 29-year-old, who was staying at the house.
It is thought the altercation may have been instigated over a noise complaint.
The argument and altercation lasted about 30 minutes.
"I just awoke to the sound of someone's door getting kicked in," neighbour Cassie Lee said.
"I heard an altercation and called the police. I came out and saw a gentleman on the floor (road)."
Port Stephens-Hunter Police District commander Wayne Humphrey said Mr Morgan suffered head injuries but the formal cause of death was yet to be determined.
Strike Force Lenehan had been formed to investigate the incident.
"They were known to each other but only casually; they lived nearby," Superintendent Humphrey said.
"The strike force is examining if there was anything more particular (to the relationship)."
Both men were known to police.
Morgan was in 2020 the subject of a massive manhunt after he became a suspect in the suspicious death of a baby boy in the Upper Hunter.
He was charged with assaulting the boy and those charges were subject to a temporary stay in the local court for two years while a coronial inquest into the boy's death was being prepared to be held in February, 2022.
The charges were later withdrawn by police and it is unknown if an inquest was ever held. No one has been charged over the boy's death.
Morgan was jailed for a maximum of two years, with a non-parole period of one year for assaulting the boy's mother. He appealed against the severity of the sentence, but it was dismissed.
Police have appealed to anyone who may have witnessed the incident or with dashcam footage to contact Raymond Terrace Police or Crime Stoppers on 1800 333 000.
