The 51-year-old man is said to be a neighbour of the sisters, who are aged five and seven.
The suspect, named as Josef R, is reported to have ambushed the children on the street as they returned home from swimming with a neighbour, and bludgeoned them with a wooden club that had nails embedded in it.
Five-year-old Sarah suffered serious head injuries and needed emergency surgery but is reported to be out of danger. Her sister Helena was also wounded in the head, but has since been released from hospital.
The girls' mother, Renate H., tried to protect her daughters but suffered facial and head injuries and lost a tooth. She is also being treated in hospital.
Police have put up roadblocks in the area and have launched a manhunt - they believe he is hiding in a forested area not far from his home.
After searching his home they discovered the weapon; a wooden, club-like object to which he had attached several nails with electrical tape.
A neighbour who witnessed the attack was able to scare Josef R. off by firing a gas pistol. He too was attacked and injured. Josef R. fled the scene on foot, leaving a car and motorcycle at his home.
The Kronen Zeitung newspaper reports that there has been speculation that Josef R., who is said to be a loner, became irrationally jealous that the girls had been out with another neighbour. “He was always very nice to our daughters, made barbecues for them and bought them ice cream,” their shocked father said.
Josef R. is described as 175 cm tall, with short, dark blond hair, blue eyes and was last see wearing grey/green trousers and a white t-shirt with a collar.
Police have warned that he is unpredictable and dangerous and should not be approached.
A photo of the suspect.