Australian tourists are unwittingly eating dog meat in Bali and supporting a racket which steals and brutally kills the animals, an investigation has uncovered.

In the distressing footage, shot by animal rights organisation Animals Australia, dogs are seen being cruelly captured and killed before their meat is served on the Indonesian island's beaches.

Balinese gangs are seen trapping dogs with wire nooses before they are bound and bagged and taken to crude slaughter houses.

The dogs are then brutally bludgeoned, hung or poisoned to death in filthy conditions.

The footage next shows a vendor selling dog meat on skewers to beachgoers from a tub with the word 'sate', meaning 'satay', written on it.

"Our investigator's footage of dogs being captured and slaughtered is deeply upsetting," Animals Australia's Director of Investigations, Lyn White, said.

"Bali's unique dogs once lived peacefully with local communities.

"It was incredibly sad to see the bewildered faces of children as their village dogs were brutally caught by dog meat gangs."  

A vendor is filmed admitting he is selling dog meat but is later heard telling tourists the meat is "not dog".

The popular street food stalls have the letters 'RW' written on them, which indicate dog meat is being sold, but Ms White said most tourists had no idea what this meant.  

"Mobile dog meat vendors are deliberately targeting tourists on beaches and are prepared to lie about the origin of the meat to get a sale," she said.

"Not only is the suffering of the dogs horrifying, tourists are unwittingly fuelling the trade."

The footage was filmed by an unnamed man who infiltrated the dog trade over four months.

Ms White said the trade breached local food safety and animal cruelty laws.

"Not only is poisoned meat entering the dog meat trade, a sample of raw dog meat tested showed the meat was contaminated with high levels of coliform bacteria and E.Coli, which are commonly associated with faecal contamination and can cause serious food poisoning," she said.

Ms White said dog eating was not a traditional Balinese practice but a Christian minority group who came to the island to work in the hospitality industry had introduced it.

"For thousands of years Bali's dogs have lived peacefully in villages with locals – it is our hope that they will be able to do so again," she said.

Animals Australia has advised authorities on the island of the investigation.