An inhaler and firelighter were used to make the device that ignited in a bin at Preston's Fishergate Shopping Centre on Thursday.
Lancashire Police said it had "the potential to cause serious injury if it had exploded".
The 27-year-old from Preston is being held on suspicion of arson with intent to endanger life.
It is understood the device, which was found in the men's toilets at about 09:10 GMT, had matches attached and had been lit but the aerosol inside the inhaler "did not go off".
An evacuation was ordered "as a precaution" because the incendiary had "gone off, causing very minor damage and no injuries", police said.
The centre remained closed for the rest of Thursday because of concerns there may be more devices but reopened at 09:00.
A man has been arrested over an "improvised incendiary device" that led to a shopping centre being evacuated.