A man has died in hospital after being set alight with petrol at his home in Darwin on Saturday night.

Police arrested a 37-year-old man at a home in Darwin's rural area, after a man in a nearby house had petrol thrown on him and was set on fire.

Jim Newton was visiting at the next house and says he heard the 60 year old screaming for help about 8.00pm (ACST) on Saturday.

"Next thing we see him running out. And he was really on fire poor fella. And my daughter grabbed the hose and was hosing him," he said.

The neighbours helped to put out the fire before emergency crews arrived.

The 60-year-old man was rushed to Royal Darwin Hospital with burns to 80 per cent of his body, but he died of his injuries late on Sunday morning.

No charges have been laid against the younger man.

Craig Garraway from St John Ambulance says the attack may have stemmed from a domestic dispute.

"I'm led to believe it may have been a neighbourhood dispute of some sort," he said.

"It's a bit sketchy for our crews because obviously they were quite busy on arrival time dealing with the man's injuries but I'm led to believe it's some sort of neighbourhood dispute."

Family members say the accused was visiting the home to celebrate a child's birth day party.

Neighbours say a dispute between the two households has been running for several years and an argument over car noise broke out just shortly before the incident occurred.

The victim worked as a backyard mechanic.