Pol Capt Banjerd Krachangsaeng, an investigating officer at the Koh Chang police station, identified the tourist as Kent Wesley Farrar, 47.
Narong Borploy, the 55-year-old operator of a local motorcycle rental service, said the Australian had rented a motorcycle from him a week earlier. When he came to return the vehicle, he started yelling at Mr Narong and complained that the bike consumed excessive fuel.
Mr Narong said he told the tourist that he could rent another bike if he wanted to, but the customer was still furious and demanded a refund.
The two continued arguing and started fighting. The tourist received a head injury during the fight.
The Australian then took a bottle of gasoline inside the shop, poured it on three motorcycles parked in front of the shop and set them on fire.
He also picked up a kitchen knife from a nearby store and tried to attack other people walking by.
A team of police later arrived at the scene and were able to calm him down.
Farrar was charged with arson. The damage was estimated at 100,000 baht.