Several houses were burned or damaged in the hours that followed, and by Tuesday the anger exploded into mass violence.
Thein Sein was quoted by state media as saying he was "suspicious of the motives" of those who turned a "trivial argument and ordinary crime into racial and religious clashes."
"According to the evidence in hand, rioters who set fire to the villages are outsiders," he said. "Participation of all is needed to expose and arrest those who were involved in the incident and those instigating the conflict behind the scene."
"Action will be taken in accordance with the law, without discrimination on the grounds of race and religion," he said.
In what appeared to be rare criticism of "969," a state media report said some organizations had distributed religious flags that were hung in front of thousands of Buddhist-owned homes and shops.
A Buddhist-led campaign, "969" has taken root nationwide with its supporters urging Buddhists to shop only at Buddhist stores and avoid marrying Muslims or selling homes to them.
Billboards with the logo were seen lining the bumpy roads.
Muslims in and around Thandwe also blamed outsiders, saying they had existed peacefully side by side with Buddhists for generations and never imagined it could be otherwise.
"Now, suddenly, anyone who believes in Islam is seen as the enemy," said U Win Myint, a 51-year-old member of the ethnic Kaman Muslim minority. "They are targeting us just for our beliefs."
Others specifically blamed 969 and "northern Rakhines."
Zaw Lay Khar, 62, who lost her mother in the attack, described how mobs waving swords and knives came into the village.
"There was nothing we could do but run," she said, adding that while the faces of the attackers were largely unfamiliar, she saw some Buddhist neighbors pointing out Muslim homes.
"I don't know how this happened," she said.