Chrysiptera arnazae is described from 19 specimens, 21.2-33.1 mm SL, from northern Papua New Guinea and eastern Indonesia (Papua Barat Province, Halmahera, and northern Sulawesi). A separate genetic study currently in progress indicates it belongs to a monophyletic clade of four species that includes C. giti (south-western New Guinea and the Togean Islands, Indonesia), C. hemicyanea (southern Sulawesi, Kei Islands, western New Guinea, and Northwest Shelf of Australia), and C. parasema (western Indonesia, Sabah, Philippines, and Ryukyu Islands). The members of this group are characterised by a brilliant blue colouration with variable amounts of yellow on the posterior/ventral portion of the body. It resembles C. hemicyanea in having mainly yellow pelvic fins (rarely with one-half to two thirds of fin blue) in contrast to the other two species, which possess entirely blue pelvics. However, it differs from all other members of the group in having a vertically, abrupt transition from blue to yellow posterior to the level of the posteriormost dorsal spines and possessing a combination of blue and yellow on the anal fin (entirely yellow or entirely blue in other species). Genetic data presented here also confirms the separation of this species from its close relatives. A key to the 10 members of the “hemicyanea complex” of Chrysiptera species is provided as well as comparative underwater photographs of the three species most closely related to C. arnazae.