The younger girl was found with life-threatening injuries near an address in Alness Drive, in the Woodthorpe area of the city.
She was taken to hospital but died a short time later, North Yorkshire Police said.
The teenager remains in police custody and is being questioned by officers, the force added.
A spokesman said officers found the seven-year-old after police were called at about 16:30 GMT.
The investigation into the circumstances surrounding the girl's death continues, he added.
Earlier, the York City and East policing team posted a message about the incident.
In a tweet, they said: "Difficult late shift for all York staff with tragic death of a seven-year-old. Thoughts go out to family members."
A 15-year-old girl has been arrested after the death of a seven-year-old girl in York, police have said.