Police officer Kyaw Naing said clashes broke out in Thabyachaing village, about 20 kilometres north of the coastal town of Thandwe, this afternoon.
He said the 94-year-old woman, Aye Kyi, died of stab wounds and that between 70 and 80 houses were set on fire.
The visit by Thein Sein to the divided region was his first since sectarian violence broke out more than a year ago.
He declined to be identified because he was not authorised to speak about the sensitive trip.
Sectarian clashes that began in Rakhine state in June 2012 have since morphed into an anti-Muslim campaign that has spread to towns and villages nationwide. So far, hundreds of people have been killed and more than 140,000 have fled their homes, the vast majority of them Muslims.
The latest flare-up began in the coastal town of Thandwe on Saturday after a Buddhist taxi driver told police he had been verbally abused by a Muslim small business owner while trying to park in front of his shop, according to a state government spokesman.
Police took the Muslim man in for questioning. But when he was released soon afterward, people became angry and started throwing stones at his home.
Hundreds of rioters burned "many" Muslim homes in three villages near Thandwe this morning, according to a police officer stationed in Thandwe who declined to be identified.
He said the villages included Thabyuchaing, Shwe Hlay and Linthi, all of them about 30 kilometres from the town centre.
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