A New Zealand bar manager in Myanmar has been arrested for allegedly insulting Buddhism after posting an online advertisement showing a psychedelic image of Buddha wearing headphones.

Police say the V Gastro Bar in Myanmar's capital was shut on Wednesday after a complaint was filed against the advertisement, which was posted on the bar's Facebook page.

Bar manager Philip Blackwood and two Myanmar employees were arrested and are scheduled to appear in court next week to face charges of insulting religion, which carry a penalty of up to two years in prison.

The image has been removed from the Facebook page and replaced by an apology.

The arrests come during a surge of religious nationalism in Myanmar, a predominantly Buddhist country.