A body of a youth wrapped in cardboard box was recovered from inside the Horticulture Office in the Nayapalli area on Sunday.
The deceased was identified as Dilip Sahu, a resident of Kantilo in Nayagarh district, who was working at a flour mill at Rental Colony here.
Sources said Dilip had an altercation with other staffs of the flour mill on Saturday night while his body was found on Sunday morning.
It was suspected that Dilip was brutally murdered and his body was thrown from the roof a building located near the Horticulture Office, police said.
Locals said the building where the flour mill was located in the ground floor had been a safe haven for antisocial elements. They alleged that the murder of Dilip could be fallout of a rivalry over drug deals.
On getting information, the Nayapalli police along with a dog squad reached the spot and initiated a probe. Later, one Prakash Jena, who also worked in the flour mill, was arrested in connection with the case.
Though the exact motive behind the killing was yet to be established, further investigation was underway. The incident has triggered panic among the local residents.