The 31-year-old's manager James Erskine has confirmed that the swimmer is battling the infection, and that it is so serious he may never swim again.
"It's serious but it's not life-threatening," Erskine told Australian Associated Press.
"From a competitive point of view - he will not be swimming competitively again I don't think."
Thorpe reportedly picked up the infection while at home in Switzerland, but has returned to Australia where he is fighting the illness.
Australia's Network Seven reported that the problems began following surgery at a hospital near the Swiss village of Ronco sopra Ascona, where Thorpe has a home.
He is now in intensive care in Sydney, and friends of the swimmer told Network Seven that they fear he may lose the use of his left arm, so serious is his condition.
Thorpe, a five-times Olympic gold medallist, has a history of depression and substance abuse stretching back many years, which he spoke about in his autobiography two years ago.
And in February of this year he was admitted to rehab after a late-night incident in which he reportedly attempted to break into a van. At the time he was taking antidepressants and several other medicines to combat a shoulder injury.
Thorpe moved to Switzerland after failing to qualify for the 2012 Olympics, hoping to begin a new life in the sleepy settlement on the shores of Lake Maggiore.
And just last month, locals described him in glowing terms to Australia's news.com.au: " It was so unexpected to have a guy like that live here, so nice and gentle and attentive… He has made a life for himself here and people don’t pay any attention if he is famous or whatever. And he always seems happy."
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.
Though 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 repeated injury problems, Thorpe last year told local media he had not ruled out a bid for the 2016 Games in Rio.
- Sports & Recreation
- Australian Associated Press