Police fired tear gas into the dormitory before arresting 43 students, Albert Mungguar, an activist, told a news conference on Sunday. He said students had been called "monkeys" during the operation.
On Monday morning, Papuan protesters set fire to a parliament building and blocked streets in the provincial capital of West Papua, Manokwari, by burning tyres and tree branches, paralysing the town, Deputy Governor Mohamad Lakotani told Kompas TV.
Television footage showed a group of about 150 people marching on the streets, as well as footage of smoke billowing from a parliament building.
"According to the report I got from the West Papua police, the situation has gradually turned conducive," National Police Chief Tito Karnavian told reporters, adding officers from other parts of eastern Indonesia could be brought in if needed.
Papua Governor Lukas Enembe said Papuans were angry because of "the extremely racist words by East Java people, the police and military", he told broadcaster TVone.
East Java Governor Khofifah Indar Parawansa in a televised statement said: "We apologise because this does not represent the voice of the people of East Java" and described the slur as "someone's personal outburst of emotion".
The incident also triggered a protest in Jayapura, the capital of neighbouring Papua province, where TV footage showed thousands peacefully protesting on the streets.