Police have arrested seven people on suspicion of inciting racial hatred after a bonfire society torched an effigy of a caravan with a gypsy family painted on the side.
The caravan tableau has led to a number of complaints of racism
The tableau, which was burnt at Firle Bonfire Society's celebrations in East Sussex, caused outrage because of the controversial display.
The society denied any claims the caravan, which had P1 KEY written on the side along with a message which said "Do you as you likey Driveways Ltd - guaranteed to rip you off", was designed to be racist.
Four people were arrested by Sussex Police on Monday and then released on bail.
A further three people were arrested on Tuesday and also released on bail until mid January.
A police spokesman said a total of 12 arrests were expected to be made by the end of this week.
Those who were detained were questioned on suspicion of inciting racial hatred.
A police spokesman said a full file would be sent to the Crown Prosecution Service and then forwarded to the director of Public Prosecutions for considerations.
It was an offence to stir up racial hatred through words or behaviour under the Public Order Act, the spokesman said.
Superintendent Grenville Wilson said: "We recognise the concerns being made across communities in East Sussex about events which happened at Firle.
"A full, open and thorough investigations is in the process of being carried out, which will uncover all the issues in the case."
The bonfire society said the effigy was chosen after the village experienced difficulties with travellers over the summer.
It has issued an unreserved apology to anyone who was offended by the effigy.
Since the controversy the society has withdrawn from all other events in the Sussex bonfire calendar.
The Commission for Racial Equality has called for those involved in the effigy burning to be pursued