A 29-year-old British banker has been arrested on suspicion of murder, following the deaths of two women in Hong Kong.

Police found the women in a 40-storey apartment block in the Wan Chai district of the city in the early hours of Saturday yesterday morning. One of the women – aged between 25 and 30 – was found dead at the scene with wounds to her neck and buttock. The other was found dead with neck injuries inside a suitcase left on the balcony. Police also seized a knife from the scene.

The unnamed Briton is reported to have been an employee of Bank of America Merril Lynch and the two women are believed to have been prostitutes.

An initial investigation found that the body in the suitcase, measuring three feet by one-and-a-half feet, had been there for three to four days and had begun to decompose. A police source told the South China Morning Post that the woman “was nearly decapitated and her hands and legs were bound with ropes. She was naked and wrapped in a towel before being stuffed into the luggage.”

A small quantity of cocaine is also reported to have been found at the scene. “We are investigating whether [the suspect] was under the influence of illegal drugs at the time of the incident,” the source continued.

One resident of the apartment block – occupied mainly by expatriates – added that he had noticed an odd smell recently. “There was a stink in the building like a dead animal,” he said. “It was a shock because you would never expect something like this to happen in Hong Kong.”

A statement from Hong Kong police said: “Police are investigating a murder case in Wan Chai in the small hours of today in which a foreign woman and another woman were killed.

“In the course of the investigation, police found a suitcase on the balcony of the unit, and a female dead body with neck injuries was found inside the suitcase. Police arrested the 29-year-old man at the scene for murder. He is being detained for inquiries. A knife was seized at the scene. Postmortem examinations will be conducted later to ascertain the causes of death.”

A spokesperson for the Foreign Office said: “We can confirm that a British national has been arrested in Hong Kong. We are in touch with the local police and stand ready to provide consular assistance.”