Hundreds of people took part in the riot on the outskirts of Kantbalu.
A crowd surrounded the police station demanding that the suspect be handed over, said a police officer from the area.
When police refused to hand over the prisoner the mob started setting buildings on fire, he said, and about 35 houses and 12 shops were destroyed.
Elsewhere hundreds of Muslims, who have been trapped in nearby ghettos after Buddhist mobs torched their homes last year, were moved to a camp for internally displaced people.
More than 5,700 people have been living in Aung Mingalar, a small Muslim quarter of Sittwe town, with police bearing assault rifles blocking entry and exit.