An Australian teenager, who is being held in Bali on suspicion of possessing a small amount of drugs, faces severe penalties if he is charged and convicted of a drugs offence.

Jamie Murphy, 18, from Perth was detained after security guards at a Bali nightclub in Kuta's Legian district allegedly found he was carrying a small sachet of white powder.

Footage of his arrest shows the distraught teenager denying the powder belongs to him.

Indonesian police can hold him for up to three days before laying any criminal charges.

Convictions for possessing even a small amount of drugs in Indonesia can lead to prison terms of one year or more.

His arrest comes just days after Bali's police chief warned Australian school leavers about the risks of taking drugs in Indonesia.

The president of Perth's Baywater City Soccer Club, where Mr Murphy is a member, said the situation was "hard to comprehend".

"Of course as time will unfold we'll know a lot more about it but for me it's a bit of a shock, as it would be to the people of my club," Gerry Maio said.

"I spoke to his mother earlier on and she … was overwhelmed with the whole deal and of course she was in tears as any mother would be.

"It's very hard to gather everything together but it's very tragic."

Teenager a 'promising athlete'

Mr Maio described Mr Murphy as a "wonderful young man" and "very promising athlete".

"As I said I haven't even seen him with a bottle of beer in his hand, always very courteous, very well liked at our club — whether it be seniors or juniors — he's that sort of person," he said.

"He was very focused on what he was doing, very uncharacteristic of what's happening but we'll know as time goes on.

"Wonderful personality, always wonderful, the children he was around with sometimes would have little clinics, most of the younger brigade would look up to him.

"He could hold a conversation with anybody. He wasn't a loud mouth. A very good ball player so to speak. He was never chatted to — even on the park when he was playing — so it speaks volumes of Jamie.

"Our thing is not to judge anybody but to see how we can best help the family and also Jamie."