Sagar Barman died of internal injuries in hospital late yesterday after his family alleges eight mill workers were involved in forcing the compressor into the boy's rectum and turning on the machine.
The boy also worked at the mill in Rupganj town, just south of Dhaka, one of millions of child workers in Bangladesh, many of them employed in hazardous industries.
"We have arrested the mill's assistant administrative officer. We've also launched a hunt for others accused including three production managers who were named in the case," Rupganj police chief Ismail Hossain told AFP.
The incident comes after a 13-year-old boy was killed in the same way last August in the southwestern city of Khulna, sparking furious protests demanding justice for the child.
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Two men have been sentenced to death over that case.
Nationwide demonstrations were also held last July over the lynching of another 13-year-old boy, who was tied to a pole and beaten to death after he was accused of stealing a bicycle.
Yesterday, the boy had apparently gone to clean near a compressor at Zubaida Textile Mills, one of the largest in Bangladesh, supplying yarn to textile factories which make clothes for Western retailers.
"They inserted a high pressure nozzle through his rectum and turned on the machine. He fell seriously ill immediately and was transferred to a Dhaka hospital where he died hours later," Hossain said.
Police was also probing why the boy was working at the factory, Hossain said.