Two men in their 20s were detained on suspicion of torching a tent set up by rightist activists on Tel Aviv's Rothschild Boulevard as part of the housing protest at the site.
Nobody was hurt in the incident.
Eyewitnesses claimed that the tent was torched by members of the Anarchists Against the Wall group.
"The tent was empty, but it could have been much worse," rightist activist Meir Bratler said. "The two little terrorists escaped but were captured on the camera of one of our friends, who handed the evidence over to police.
Bratler said he had run into the suspects earlier. "These guys have been picking on us from the moment we got here. Yesterday in the middle of the night they tried to hurt us but we chased them away," he said, adding that the suspects had arrived "drunk and violent."
Police believe one of the attackers who torched the tent also tried to deface signs and even threatened the protesters with violence.
However, the Anarchists Against the Wall movement rejected the leftists' claims.
"The idea of torching a tent with people inside is shocking," said a member of the movement. "The very idea of one of the activists belonging to Anarchists Against the Wall would do such a thing is preposterous. These are groundless, slanderous accusations aimed."
Bratler also lashed out at the police. "It is inconceivable that the police know how to maintain order in Judea and Samaria but here in central Tel Aviv lawlessness rules," he said.
But the activist stressed that he would not allow "a few hooligan anarchists to chase us out and shut us up."
"We believe in this protest and our just cause. We know most of the people support this protest and we also know the solution is investment in settlement in Judea and Samaria. We will continue to be here and voice this message," he said.
Police suspect that the arson followed a dispute between the suspects and several protestors at the site. Police officers from the downtown Tel Aviv station were able to nab the suspects, who fled the scene.
Tensions flared on Rothschild Wednesday after large groups of rightist activist arrived at the protest site to the great dismay of many protesters who do not agree with the rightists' views.
Extreme rightist Baruch Marzel visited "tent city" as well and told protesters that "when it comes to social issues, I'm more Left than the Left."
Right-wing groups such as Bnei Akiva, Im Tirtzu, and My Israel said they were also protesting in Tel Aviv for lower housing and staple product costs.
Eli Senyor contributed to the report