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A loyalist bonfire in Northern Ireland featuring an effigy of a mosque has been condemned as an incitement to hatred.

The effigy sits atop a tower of pallets that is to be burned on Friday night in the County Tyrone village of Moygashel as part of wider loyalist commemorations. Placards beneath the display read “secure our borders” and “end the threat of radical Islam”.

Amnesty International and politicians condemned the effigy and urged police to intervene.

“This vile display is a blatant attempt to stir up anti-Muslim hatred and intimidate local families,” said Patrick Corrigan, Amnesty International’s Northern Ireland director. “The police must investigate this as a potential crime, identify and hold to account those responsible, and ensure this material is swiftly removed before it can be used to incite further hatred and violence.”

Police said on Thursday that a 56-year-old man had been arrested on suspicion of displaying threatening, abusive or insulting material that was intended to stir up hatred. He remains in custody.

The controversy comes four weeks after a knife attack, over which a Sudanese man has been charged, triggered race riots in Belfast and other towns.

The Moygashel Bonfire Association said its display was a “political protest” against “uncontrolled illegal mass immigration” and a “failure to deport” foreign criminals. “Our display may well shock, offend or outrage others, but nonetheless it is an exercise in our rights under article 10 of the ECHR,” said a statement posted on Facebook, referring to the European convention on human rights.

It said the display did not target any individual. “We make that very clear. Our opposition is not to people, but rather to ideology and government policy.”

Last year the same association burned an effigy of a dozen dark-skinned, lifesize mannequins with lifejackets seated in a boat.

The Moygashel pyre is one of an estimated 300 bonfires that are to be lit across Northern Ireland this weekend as part of the annual celebration of the victory of King William III’s Protestant forces over Catholics at the battle of the Boyne in 1690.

Some bonfires burn Irish tricolours and effigies of Irish nationalists but in recent years they have started to include anti-immigrant themes.

Last month, police removed a “Muslims not welcome” banner from a children’s playground in Moygashel. Similar banners have appeared at nearby sites.

Politicians urged the police to remove the bonfire effigy. Colm Gildernew, the Sinn Féin Stormont assembly member for Fermanagh and South Tyrone, called it a hate crime. “There is no place in our society for racism, and it is the responsibility of all political representatives and community leaders to stand against it.”

Eddie Roofe, an Alliance party councillor, said those responsible were trying to instil fear and spread hatred. “People should be free to live without fear of themselves or their families being targeted or subjected to discrimination.”

The nonprofit group Faith Matters said that to burn a replica mosque was “a chilling and dangerous message” to Muslim communities in Northern Ireland and beyond.

In the Republic of Ireland, three men have admitted in court to involvement in a plot to set fire to a mosque in County Galway last year. They are to be sentenced in October.