The song, performed by Simon Ledger, 34, is said to have offended two Chinese people as they walked past the bar where he was singing.
The entertainer regularly performs the 1974 number one hit, originally by disco star Carl Douglas, at the Driftwood Beach Bar in Sandown, on the Isle of Wight.
But after one of the passers-by reported his routine on Sunday afternoon, Mr Ledger was arrested on suspicion of racially aggravated harassment.
‘We were performing Kung Fu Fighting, as we do during all our sets,’ he said.
‘People of all races were loving it. Chinese people have never been offended by it before.
‘But this lad walking past with his mum started swearing at us and making obscene hand gestures before taking a picture on his mobile phone.
‘We hadn’t even seen them when we started the song. He must have phoned the police.’
Officers later called Mr Ledger while he was eating in a Chinese restaurant to arrange a meeting.
The singer assumed it was a prank – but he was later arrested and is still under investigation.
Read the whole story here.