ONE man is dead and another has been taken into police custody following a heated argument in a town east of Melbourne.

Homicide detectives believe a 32-year-old man was involved in an argument with two others at Traralgon around 12.45am (AEDT) today.

Police believe the argument escalated prompting one man to stab the 32-year-old.

The victim was rushed to hospital where he later died.

Police have arrested a 33-year-old Traralgon man.