The 23-year-old suspect was arrested from his home address on Friday morning and has been released on police bail while enquiries continue, West Midland Police confirmed today.
Father-of-one Mr Gallagher died from a single stab wound after being attacked on the car park of West Cross Shopping Centre last Sunday afternoon.
The 31-year-old, from Smethwick, had a daughter and was described as a "proud and loving father" by his family.
So far five murder suspects have been arrested and one has been charged.
Tyrell Harris, 19, of Helvellyn Way, West Bromwich, appeared at Wolverhampton Crown Court yesterday where he was remanded in custody ahead of another hearing on June 18.
Three men previously arrested on suspicion of murder have also been released pending investigation, as has a man arrested on suspicion of obstructing police.
Meanwhile a fundraising page launched for Mr Gallagher's funeral has now raised more than £6,000 towards a revised £7,000 target.
On the page, which has received donations from more than 300 people, Mr Gallagher is described as "a magnet in the family constantly drawing everyone together".
Ashley Gallagher wrote: "He loved the kids in his life starting from his own right through the family.
Interactive map of the area:
"After the lockdown he was going to push his business which would have been a success because when he is passionate about something he puts his all into it.
"Very determined..... I am truly glad that I had the pleasure of having him in my life like I am sure many of you are.
"He has influenced a lot of people and he lives on in all of us that he has known."
Mr Gallagher was one of four people stabbed in three West Midlands knife attacks in the space of 30 hours, with one of the other victims attacked with a machete at a petrol station just 100 yards away from the murder scene.
Shocking footage showing the moment Mr Gallagher was killed was widely shared on social media despite pleas from his family and the police for the videos to be taken down.
West Midlands Police is continuing to appeal for information about Mr Gallagher's death and has asked for any witnesses to get in contact.
Anyone with information can call West Midlands Police on 101, or Crimestoppers anonymously on 0800 555111.
Timeline of knife attacks
Sunday, 2.40pm: Two teenagers injured in Solihull stabbing. One, a 16-year-old boy, is left critical after being knifed in the back. A 19-year-old man is also taken to hospital.
Sunday, 4.40pm: Karl Gallagher killed in Smethwick. Mr Gallagher, 31, is pronounced dead at West Cross Shopping Centre after being knifed in front of shoppers. Police and family members urge the public not to share shocking video footage of the attack which is posted online.
Monday, 6pm: Man knifed at Smethwick petrol station. A man is slashed in the arm on a petrol station forecourt 100 yards away from where Mr Gallagher was killed. Armed police surround and raid a house on nearby St Paul's Road.