Horrific images of the fatal attack, captured by closed circuit video cameras, were posted on the website of La Repubblica newspaper.
They show the hooded attacker approaching the victim, Marcello Cimino, 45, as he slept under heavy bedding in a portico next to a building that is used as a soup kitchen for the homeless.
He is carrying a bucket which he empties onto the bedding. He then takes some sort of a lighter out of his pocket and sets the bed alight, sparking an instant blaze.
Neighbours heard the victim screaming but he was dead by the time emergency services arrived at the scene. Palermo Mayor Leoluca Orlando described the murder as "an act of pure barbarism".
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