Police in Thailand have arrested a man in connection with the killing of a British tourist who was shot dead at a New Year’s Eve party after getting caught in the crossfire of a gunfight between two local gangs.

Stephen Ashton, 22, is said to have been shot as he danced with friends at a beach bar on the island of Koh Phangan.

Colonel Kittakarn Kramomthong, chief of police at the island’s station, said officers had arrested a 26-year-old Thai man and confiscated a gun. The man had apparently gone into hiding in the island’s mountainous interior. He was expected to be charged with manslaughter, Kittakarn said.

A Foreign Office spokesman confirmed the dead man was Ashton, and said: “We are aware of the death of a British national in Thailand on New Year’s Eve and we are providing consular assistance to the family.”

It was reported that Ashton’s family had travelled to Thailand and were on the way to Koh Phangan to formally identify his body and make arrangements for his repatriation.

Kittakarn told the Bangkok Post that Ashton was with a group of friends and 300 other tourists at the 2013 countdown party at the Zoom Bar on Haad Rin beach when he was shot by a homemade gun early on Tuesday.

According to witnesses who spoke to police investigators, an argument broke out between two groups of locals at the Zoom Bar, one of the many beachside venues that line Haad Rin.

As one of the men walked away from the bar he reportedly pulled out a gun and fired into the crowd, hitting Ashton in the chest. Ashton was taken to Bandon International hospital but could not be revived.

The Bangkok Post said Ashton had been visiting the island with four or five friends and was staying at Pink Bungalow near the scene of the shooting.

Koh Phangan has been a popular destination for British backpackers and hippies for decades, but in recent years it has established itself as a mainstream party venue with hundreds of thousands of tourists from around the world flocking to the island for its famous “full moon” parties. Locals had been bracing themselves for a deluge of extra tourists at the weekend because the full moon – which fell on Friday – coincided with the new year celebrations.

According to tourism officials, 80,000 turned up for Friday’s full moon party and tens of thousands more were expected to see in 2013 at Haad Rin.

The island’s growing popularity has led to increased wealth but also growing security fears. The Foreign Office says seven British nationals have been murdered in Thailand since January 2009, and it picks out Koh Phangan as a potential flashpoint.

Its official travel advice states: “Western tourists have been victims of vicious unprovoked attacks by gangs in Koh Phangan. These attacks are particularly common around the time of the full moon parties and generally occur late at night near bars in Haad Rin. Exercise caution when walking in this area at any time, especially after dark.”

Sophie Harwin, a graphics editor from Surrey who spent New Year’s Eve nearby but had left the area by the time the shooting occurred, said. “I just met someone who said that loads of people were trying to save him. Very sad.”

Tributes to Ashton were posted on social networking sites as news of the shooting spread.

Aaron Kelly wrote on Facebook: “Horrible news. Be good up there mate.”

Jaydon Gibbs said on Twitter: “My heart is with his family. The nicest guy RIP Stephen Ashton xx.”

Another Twitter user, Dean DeRosa, said: “Worst news for the start of 2013! R.I.P Stephen Ashton! Was a good lad!!”

Robbie-Cameron Gray posted a photograph of the two of them as young boys on Ashton’s Facebook page. He said: “Don’t want to believe it. Still got photos of us on my wall from football and school. Will miss you mate.”

Neighbour Dawn Mason, 48, described Ashton as a “very normal, likable young man”.

His family moved to Purley, south London, about three years ago, she said. “They’ve always been very nice neighbours. I went to the house and the family just seem in complete shock,” she added.

Ashton’s mother, Diane, was flying back to Britain from a skiing trip following news of her son’s death, Mason said.

Members of Ashton’s family said on Tuesday night they were too distraught to speak.