UPDATED 7.13PM A 55-year-old Sydney taxi driver has been charged with the murder of Malaysian consulate driver Mohd Shah Saemin in the Sydney suburb of Leichardt on Sunday.

Indonesian-born Hazairin Iskandar, 55, was charged in the Burwood Local Court today with murdering Mohd Shah, 43, just before midnight outside Shah's home at Leichhardt in Sydney's inner west, the Australian Associated Press reported.

He elected not to face magistrate Christopher Longley, who formally refused bail and adjourned the matter to Sydney's Central Local Court on April 20.

Meanwhile, an Indonesian-born woman was arrested in the same suburb at about 3.30pm today in connection with the killing.

"The 46-year-old woman was taken to Newtown police station where she is assisting police with their enquiries," police said in a statement.

It is not yet known what, if any, criminal charge the woman could face.

Mohd Shah was stabbed and bashed, allegedly with a hammer, before dying on the footpath outside his Marion Street home in front of shocked onlookers.

A second man seen fleeing the scene is still being sought by police.

Iskandar was arrested at his Croydon home, in Sydney's west, just after 10pm Tuesday, along with a woman who has been released pending further enquiries.

Iskandar's wife worked with Melaka-born Mohd Shah, who was divorced and had lived in Australia for about 10 years.

He was an Australian citizen and had worked at the consulate in the prestigious suburb of Bellevue Hill for about three years.

Meanwhile, police continued their search for the second man involved in the murder.

A man, believed to be the Australian-born son of the Iskandars, left the country on an Indonesia-bound flight Wednesday morning.

On Monday, the director of the Malaysian Students Department Australia under the Consulate of Malaysia, Mohd Nasir Abu Hassan, described Mohd Shah as a "very dear colleague", saying that he could not imagine how such a tragedy could have occured.

- Bernama