The Magpie couple said the kids, visiting for Christmas, usually spent most of their time out the back with their favourite animals.

Mr Penhall said his family was enjoying a Boxing Day get-together when his five alpacas started screaming.

He ran to the yard, only 50m from his house, to find two dogs mauling one of the alpacas in a shed where the animals slept at night.

Mr Penhall said he chased the dogs away to find a second alpaca had been attacked and killed.

"It had been mauled to death and dragged into the dam, with half its leg bitten off," he said.

A vet was called to treat the injured alpaca, which had puncture marks on its body and head and was in shock.

Mr Penhall said he was grateful the children were in the house.

"The thing is that when the grandkids come down they are always up the back patting the alpacas," he said.

"So you can't help but think that if they were up there with them, something could have happened to the kids as well."

Mr Penhall said he and his wife had taken on the alpacas as pets after an elderly lady found she couldn't care from them when her husband died.

He said he had never before seen the dogs, which he believed were not wild.

"My personal opinion is that someone has come up from the city and let them out for a bit of a run because we haven't seen them before or seem them since," he said.

"There were two, I think they were Staffordshire terriers."

Mr Penhall said he chased the dogs for around 10 minutes but lost sight of them while an animal control officer from the Ballarat City Council also attended but was unable to find the dogs.