An elderly Indian-origin woman and her daughter were killed while her granddaughter was seriously injured during a suspected "break-in" attempt by their Canadian neighbour at their home in Toronto.

Sixty-five-year-old Saramma Varughese and her daughter Susan John (43), hailing from Kerala [Images], were killed in the incident, which took place on Monday.

Sara John, the 20-year-old student of York University who was the granddaughter of Varughese, was seriously injured and is recovering in a hospital, neighbours said.

Toronto police arrested a suspect in the double murder and identified him as Nathaniel O'Brien (31).

O'Brien has been charged with two counts of first-degree murder and one count of attempted murder, Toronto police service said in a statement on Tuesday.

Investigators said the suspect is the women's next-door-neighbour. The police did not confirm if the victims were stabbed to death, but there were reports a knife was recovered. Post-mortems are scheduled for Wednesday.

Emergency crew were on Monday morning called to the women's home in Rotary Drive in Sheppard Avenue, where they found the bodies of the deceased with apparent stab wounds.

The police were looking into the possibility that the deaths were a result of a 'break-in' gone wrong.

Shocked neighbours said the women had moved into the two-storey house about two years ago and were nice, friendly and liked by everyone on the street.

"I don't know what to say," Bobby Harrilal, said who lives three houses away. "They were such good people."

Harrilal was woken up by a blood-curdling scream on Monday morning. She rushed to the front window, but didn't see anything. "I thought I had a nightmare," she said.