A MAN who complained of electromagnetic waves "penetrating his brain" after invading a suburban grandfather's home and killing him with a hammer has been found not guilty of murder.

On Tuesday, prosecutors conceded - and the Supreme Court agreed - Steven Patrick Berg was mentally incompetent when he killed Deon Hewitt, 74.

Berg, 34, will now be subject to a limiting term - a period in supervised detention - equal to the jail term an unaffected person would receive for the same offence.

Previously, prosecutors alleged Berg invaded the Flinders Park home shared by Mr Hewitt and his wife, Patricia, in May last year.

They alleged Mrs Hewitt ran to the home of another neighbour, Andrew Staalstra, saying her husband had been "killed by a man with a hammer".

At the time of the incident, Mr Staalstra said he armed himself with a bat and went into the house, finding Mr Hewitt's body inside.

He said that he then chased a man along neighbouring streets before finally stopping him on the corner of Holbrooks Rd and Jellicoe St.

Mr Staalstra told reporters the man "made a strange statement about some electromagnetic waves penetrating his brain or something" prior to the arrival of police.

On Tuesday, prosecutors said they conceded Berg was mentally incompetent, following expert reports from two forensic psychiatrists.

Counsel for Berg, meanwhile, conceded their client had acted as alleged by prosecutors.

Justice David Lovell said he was satisfied, beyond reasonable doubt, that Berg had killed Mr Hewitt while mentally incompetent, and found him not guilty of murder.

He remanded Berg in the custody of James Nash House to face court again in December, when his limiting term will be set.