Trouble began at Joseph Colony on Friday, when over 2,000 enraged Muslims surrounded the neighbourhood and pelted stones at the homes of Christians.
The mob was led by Shafiq Ahmed, who claimed he was looking for a Christian named Savan Masih as he had allegedly committed blasphemy by insulting the Prophet Mohammed.
Some men found Masih's 65-year-old father Chaman Masih and assaulted him and then burnt his home.
The mob dispersed after a police contingent was posted in the area and officials said they had registered an FIR against Masih under the blasphemy law.
Yesterday, the mob returned to Joseph Colony in the morning and drove out all Christian families that were still in the area.
Footage on television showed masked men armed with sticks rampaging through the neighbourhood, setting houses and cars on fire. The police did little to stop the mob.
Police said they had arrested Savan Masih, a 26-year-old sanitation worker, and shifted him to a safe location.
Shahid Imran, named as the complainant in the FIR against Masih, alleged that the Christian had uttered blasphemous remarks about the Prophet Mohammed in the past too.