The clashes began after a rumour spread that a Muslim man had doused a Buddhist woman with fuel and set her on fire at a petrol station.
The woman involved in the incident was taken to hospital with burn injuries.
Recent months have seen worsening communal violence in Burma.
The man accused of setting the Buddhist woman alight was taken in to custody but a crowd gathered demanding he be handed over, residents said.
A mosque and shops owned by Muslims were reportedly set alight by the crowd when the police failed to give him up.
The authorities have imposed a curfew in the town, according to residents.
"Fires have been put out at some places in the town... the situation is under control now," an unnamed official told the AFP news agency.
Wave of violence In March, at least 43 people - mostly Muslim - died in violence that erupted after an argument at a Muslim-owned shop in the town of Meiktila and subsequently spread to other towns.
The owner of the shop and nine other Muslims were imprisoned last month for that outbreak of violence. As yet no Buddhists have been convicted over the Meiktila clashes.
Ethnic violence in Rakhine state last year left nearly 200 people dead and forced tens of thousands of people from their homes.
The conflict that erupted in Rakhine involved Buddhists and Rohingya Muslims, who are not recognised as Burmese citizens.
The communities remain largely segregated in the wake of the violence, with many displaced Rohingya Muslims living in tents or temporary camps.
Human rights groups have criticised Burmese authorities for being complicit in the persecution of the Rohingya.

bbc.com