The 19-year-old claimed the attack took place two weeks ago at a hotel in Ayia Napa.
Twelve Israelis, all aged 16 to 20 except for a 15-year-old, were arrested but five were afterwards released.
The British teenager has now been arrested on suspicion of filing a false complaint and public mischief.
All of the accused deny the allegation.
This is a breaking news story and is constantly being updated.
Please refresh the page regularly to get the latest updates.
Reporters working on dailystar.co.uk will be working to source the latest information, reaction, pictures and video related to this story.
You can also follow us on Twitter @Daily_Star to get the latest news updates 24 hours a day.
Or download the Daily Star app for flash alerts on the biggest stories of the day.