The structure was erected in Moygashel ahead of this weekend’s Twelfth of July celebrations, prompting criticism from politicians, community leaders and human rights campaigners.
The PSNI confirmed a 56-year-old man was arrested in connection with the incident and remains in police custody.
Amnesty International described the display as an attempt to intimidate Muslim families and warned that material intended or likely to stir up racial or religious hatred can amount to a criminal offense under Northern Ireland law.
Images of the bonfire circulated widely online, reigniting debate over displays that have repeatedly attracted controversy in the run-up to the annual celebrations.
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The Moygashel site has been at the center of previous rows. Last year, a boat carrying effigies representing migrants was burned on the bonfire, while earlier displays included a replica PSNI vehicle and an effigy of former Taoiseach Leo Varadkar.
Police have not commented on the motive behind the latest display but said inquiries are continuing following the arrest.
The annual Twelfth bonfires are a longstanding tradition in many unionist communities across Northern Ireland, but some have faced criticism in recent years for burning political symbols, effigies and other contentious displays.
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* This article was originally published on Extra.ie.