The incident occurred within the premises of privately- run Islamia College in Charsadda district.
Sareer Khan was killed by Fahim Ashraf who was later arrested with a gun, district police chief Zahoor Afridi said.
"The student was raising slogans at the time of his arrest that he killed a blasphemer but so far no evidence of blasphemy has been found against the victim," Afridi said.
Sources in the college contradicted blasphemy claims, saying that the principal had Masters of Arts (MA) degree in Islamic Studies and was also a Hafiz-e-Quran, meaning he had memorised the entire Holy Quran.
More From This Section
He also had an argument with the principal over the issue some days back.
Afridi said that an investigation was being carried out and facts would be made public.
Meanwhile, college students and relatives of the accused blocked a road and disrupted traffic but the district administration pacified them.
Blasphemy is a highly sensitive issue in Pakistan and people have been killed in the past on mere suspicion.
Mashal Khan, a university student, was lynched last year by a mob of fellow students in Charsadda over alleged blasphemy, which was never proved by the police.