Neighbours reported hearing screams before the grim discovery and armed police swooped on the flat which is situated above a wine bar at about 5pm yesterday.
A trail of blood was found leading away from an alleyway alongside the three-storey building.
A blood-covered man, aged in his 20s, was arrested by police on suspicion of murder outside a private hospital a short distance away 30 minutes later.
Block of flats in the centre of Bournemouth where the grisly attack took place
Officers dressed him in a white forensic suit to preserve any evidence before he was driven to a police station.
Police taped off the building and officers with sniffer dogs were seen searching an area to the rear of the property, possibly looking for a murder weapon.
The incident happened at a flat above the Downes Wine Bar in the Lansdowne area of Bournemouth.
The victim is believed to be aged in his early 20s and was in Britain to learn English.
Phillip Ellison, who runs the wine bar, said: 'A girl turned up outside the flats and she was calling out the guy’s name over and over.
'There was then a lot of commotion. A guy was shouting out the back, trying to get someone to open the flat.
'Police came and taped off the flats and refused to allow anyone in the building.
'All I know is that a guy has been murdered and it was said he had been decapitated.
'As far as I know the victim was Spanish and he might have been here as a language student.'
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Valiant Dickson, 29, who lives in the flat underneath the murder scene with his wife Paula, 30, and their baby daughter Maya, said: 'It is a two bedroom flat where it happened and there used to be about six or seven people there, coming and going.
Philip Ellison owns the wine bar beneath the murder flat
'But now there are two or three Spanish men aged around 25 who live there. It is all quite shocking.'
A woman who works in the nearby hospital saw the man being arrested.
She said: 'I saw a man covered in blood and the police were holding him down.
'He was lying on the ground on his side; it looked like he had blood on his knees.'
Neighbour Valiant Dickson lives in the flat below the murder scene with his wife and child
A spokesman for Dorset police, said: 'We received a report that a man had been seriously attacked at an address in the Lansdowne area of Bournemouth.
'Officers attended and the body of a man was discovered.
'An immediate search of the area took place and a man was arrested in Beechey Road.
'This man, in his 20s and from Bournemouth, continues to help officers with their enquiries.'
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