The body of Sheila von Wiese Mack was found Tuesday stuffed into a suitcase in the boot of a taxi in front of the five-star St. Regis hotel in the upscale Nusa Dua resort area of Bali.
The 62-year-old victim was half naked, had several wounds to her head, and appeared to have put up a struggle, a doctor said.
The body was discovered when the couple failed to show up at the waiting taxi, Mr Utomo said. They were seen on CCTV leaving the hotel via a stretch of beach at the back of the property, instead of the main entrance.
Police launched a hunt and the pair were found sleeping at a hotel in the tourist area of Legian, north of Nusa Dua, early Wednesday, Mr Utomo told AFP.
"This is murder, and we will decide from our investigation whether it is premeditated or spontaneous," he said.
The victim's body was sent to the main hospital in the Balinese capital Denpasar for an autopsy. A doctor there said it had several wounds to the head, which appeared to have been inflicted with "blunt tools.”
"Looking at the wounds, the victim must have fought back," said Ida Bagus Alit, adding that one of her fingers on her left hand was broken.
The hotel said that it was aware of the "terrible tragedy" and was assisting authorities in their investigation.
The US embassy in Jakarta said in a statement that it was "aware of the death of an American citizen that took place in Bali and we understand that two individuals have been arrested in connection with the case".
The beachfront St. Regis is one of the most exclusive hotels in Bali with rooms starting at $470 a night and a 24-hour butler service, according to its website.