An Australian woman has been charged with murder after allegedly setting her husband's genitals on fire because she thought he was having an affair.

Prosecutors told the Adelaide Magistrates Court on Monday that 44-year-old Rajini Narayan confessed to neighbors that she set her husband on fire on 8 December after she saw him hug another woman.

She was initially charged with endangering life and arson but the charges were upgraded to murder after her 47-year-old husband, Satish Narayan, died from his injuries last week.

Download the new Independent Premium app Sharing the full story, not just the headlines

Prosecutor Lucy Boord said Narayan told neighbours she was a "jealous wife" but she hadn't meant to kill him when she doused the sleeping man's genitals with an alcohol-based solvent and then set him on fire.

Boord quoted Narayan allegedly saying: "I just wanted to burn his penis so it belongs to me and no one else ... I didn't mean this to happen."

The husband jumped out of bed and knocked over the bottle of alcohol, causing the fire to spread and resulting in 1 million Australian dollars ($715 million) of damage to their town house and an adjacent property, the Adelaide Advertiser reported.

Narayan was remanded in custody for psychological assessment and will reappear in court Friday. She has been charged with murder, arson and three counts of endangering life, as the couple's three children were at home during the incident.