After speaking to a local person, a police officer became suspicious and decided to conduct a foot patrol of the town centre.
It was then that he saw a fire at the rear of the town's Salvation Army charity shop.
The fire service was called and a witness approached police and gave a description of a man leaving the scene in a ''high-vis'' jacket, police said.
The officer located and arrested a man in such a jacket shortly after, walking north of Milton. Police said the man had been drinking. He was known to police.
Specialist fire investigator Mike Harrison said the Milton Fire Brigade put the fire out minutes before it would have spread through the building.
Detective Sergeant Stan Leishman said had the fire taken hold it could have taken out businesses in the area.
The man appeared in the Dunedin District Court yesterday before Judge Dominic Flatley and was remanded in custody to reappear today on arson charges.
