The five-time Olympic champion had contracted "two bugs" after undertaking a series of shoulder surgeries, manager James Erskine said. (Agencies)
"It's serious but it's not life-threatening. He's quite sick but that's the situation ... From a competitive point of view - he will not be swimming competitively again, I don't think," Erskine said.
The 31-year-old was being treated with large doses of antibiotics, state broadcaster ABC reported earlier on its website (www.abc.net.au).
Erskine said Thorpe had undertaken "two or three" operations on his troublesome left shoulder in the past two months, and suggested the injury, rather than the infection, would force Thorpe from the pool.
"The shoulder operation was a major operation, he's got as many plates as Barry Sheene," Erskine said, referring to the late British motorcycling champion.
Erskine had denied earlier Australian media reports that Thorpe might lose the use of his arm because of the infections, AAP said.
The agency added that the swimmer had received a number of visitors at hospital and was said to be in "good spirits".
Thorpe's management was not available to comment. Australia's most decorated swimmer with 11 world championship golds, Thorpe was admitted to hospital earlier this year to treat depression after he was found disoriented in Sydney.
Police were called when a resident saw Thorpe behaving oddly near a vehicle and his manager Erskine later said he had been taking a mixture of anti-depressants and medication for his shoulder.
Thorpe won three golds in his Olympic debut at the 2000 Sydney Games and clinched another two at Athens four years later, but surprised by announcing his retirement in 2006 at the age of 24, citing a lack of motivation.
Thorpe announced he would return to the pool in 2011 in a bid to qualify for the London Games but he flopped at national trials the following year and failed to make the team in either of his targeted 100 and 200 metres freestyle events.
Describing the comeback as a fairytale "turned into a nightmare", Thorpe said he would continue swimming.
He later revealed in his 2012 autobiography "This is Me" of a near decade-long battle with depression, including suicidal thoughts and regular alcohol abuse.
Though frustrated by injury setbacks, Thorpe last year told local media he had not ruled out a bid for the 2016 Games in Rio.
The five-time Olympic champion had contracted "two bugs" after undertaking a series of shoulder surgeries, manager James Erskine said.