The Katni police arrested 30-year-old watchman Vishnu Singh for allegedly abusing the girl during her stay at local children home early this year from January 2 to February 15.
The victim had been found stranded in a train on January 1 this year at Katni station and was later sent to the 'Shishu-Griha' which was closed on February 15 due to some irregularities and the children staying there had been sent to other orphanages in Katni and other cities.
The police, however, rubbished the allegations of sexual exploitation of one girl by another.
"The superintendent of our orphanage lodged a complaint with the police after we found a seven-year-old girl, living in our facility, bleeding from her private parts. On being asked by superintendent, she blamed another girl living in the same orphanage of (sexually) abusing her," the NGO director told PTI.
"It was found during initial investigations that bleeding in the private parts of the seven-year-old victim was an injury inflicted when she was playing with other girls including the eight-year-old. It did not result from sexual act," said Inspector Kirti Shukla of Katni town police station.
The NGO director said the sexual exploitation of the eight-year-old girl by the watchman came to light during her counselling.