Sergeant Mark Scott from Lake Illawarra Local Area Command said the incident happened after the two men returned from a night out at a local hotel to watch the State of Origin rugby league match.
Sergeant Scott said an argument erupted when the offender has urinated in a floor drain in the bathroom.
The stabbing victim allegedy punched the accused with a closed fist to his face.
The 34-year-old man who was punched has then allegedly stabbed the 29-year-old in the left forearm, right side of the stomach and back of the right thigh.
The victim was taken to the Shellharbour Hospital where he was admitted and underwent surgery for nerve damage.
About 12.30am on Thursday morning, the accused has contacted Lake Illawarra Police Station and informed them of injuries sustained by the victim.
Police have attended the home in Mount Warrigal and established a crime scene.
The accused was taken to Lake Illawarra Police Station and taken into custody.
He has been charged with reckless wounding. His bail was refused and he will appear in Wollongong Local Court on Thursday.