Warne slammed Australian cricket and called for Arthur to be sacked in a scathing assessment of his nation's overall operations of the game at international level.
Australia's greatest ever Test wicket-taker with 708 scalps has been in a running battle with cricket authorities summer as captain of high profile Big Bash franchise Melbourne Stars.
He wants Arthur replaced by former New Zealand captain Stephen Fleming and the spin king also wants a new chief executive to run Australia's cricket business and national chairman of selectors John Inverarity to be dumped as well.
Amazingly, Warne calls for the same 11 players to represent Australia in all formats of the game through Test, limited-overs 50-50 games as well as the helter-skelter of Twenty20 matches.
Arthur hit back on Perth radio 6PR ahead of Australia's five-match one-day series against the West Indies.
"He's living in a dream world to be honest," Arthur retorted.
"It's just not possible with the amount of time the players have at their disposal.
"He's living in a dream world and clearly he's not up with the times."
Arthur vehemently defended Australia's highly contentious process to rotate players through the national team at the various formats of the game.
In a rare insight into the controversial constant changing face of the national team, the head coach confessed that most changes are through injury concerns to key players.
Arthur confessed that, especially with pace bowlers, his medical staff have had to manage on-going niggling injuries with key strike force quicks like Mitchell Starc, who astonishingly was rested from a first Boxing Day Test outing.
"I've tried to clarify this ad nauseam," Arthur declared.
"It's not a rotation system.
"We don't sit there and rotate players and think, 'he is going to play here and he is going to play here and there'.
"What we do, is we manage our players.
"So it's about player management.
"If there is a player who is not 100 percent fit, we don't take the risk with him.
"We want guys that are going out on the field 100 percent fine and ready to go all of the time.
"We haven't rested or rotated many people this summer.
"If you look at Mitchell Starc got rested for the Boxing Day Test match and that was because we needed to manage him.
"Mitchell Starc has a serious ankle injury. He's got spurs on his ankle that could go at any time."