The damaged portrait measuring six meters high, five meters wide and weighing about two tonnes is a reproduction of the fourth edition of Mao's portrait, Xinhua said.
An unemployed man, Gu Hai'ou, from the northwestern city of Urumqi, has been arrested for allegedly throwing a burning object at the portrait of communist China's first leader.
Police are questioning Gu, 35, who was treated in a mental hospital last year, according to Xinhua.
Officials have not said whether Gu would face criminal charges.
The original portrait of Mao was painted by Zhang Zhenshi in 1950, and has since served as the model of Mao's likeness for all the portraits that have hung at the Tiananmen gate, the main entrance to the Forbidden City.
In 1989, at the height of the Tiananmen Square pro-democracy demonstrations, three men were detained for throwing red and black paint on the portrait during pro-democracy protests.
They served more than 10 years in prison.
One of them, Yu Dongyue, a journalist, was jailed for more than 16 years for hurling eggshells filled with red paint at the portrait.
He was diagnosed as mentally ill by the time he was released in February 2006.