An Australian entrepreneur is facing a potential life sentence after being arrested in Bali along with a British journalist, after police allegedly found hashish at his residence.

The 48-year-old, who is being referred to as GS, was arrested in Sanur on Saturday at the address where he has been living for the past five years, while the British man, DM, was detained following a sting operation at a bar.

Police allege they discovered what they suspect to be hash at both men’s addresses.

Head of the drugs squad at Denpasar Police Station, Gede Ganefo, said officers went to the house of the Australian about 12.30pm and found luggage with a small bag inside containing what they believed to be at least seven grams of hash.

After questioning, Mr Ganefo said the Australian man told them he had obtained it from his 54-year-old British friend DM.

The 48-year-old was told to set up a meeting with DM, who he arranged to see at On On Bar in Sanur at 4.30pm.

Upon searching his body, police allege they found a small satchel wrapped in aluminium foil with what they suspected to be hash inside.

Officers then went to DM’s house where they found another satchel inside a boxing glove.

In total, police allege they discovered at least 10 grams of hash in the Brit’s possession, as well as a bong.

They say he told them he got it from a man but he didn’t know his identity or address.

Police say the Australian man is an “entrepreneur” and the British man is a journalist residing temporarily in Sanur.

The Australian consulate in Bali is making arrangements to visit the businessman.

– AAP