Chiang Mai is Thailand's fourth-largest city and tourists can visit the historic walled parts of the city, some which date back to the 13th Century.
"She never did a bad thing in her life".
A Canadian woman, Brittney Schneider, has also been arrested and charged with vandalism for allegedly adding her first initial to graffiti on the gate.
Reuters was unable to reach Schneider or Lee for comment. A spokesperson says provisions in Canada's Privacy Act prevents Global Affairs from disclosing any further information.
"I just told her, 'What's done is done, '" she said.
The 23-year-old holidaymaker, named Lee Furlong, was travelling in Chiang Mai and mis-spelt "Scouse" on the Thai "Tha Phae" red-bricked gate.
At the time of their arrests, the graffiti had already been scrubbed off by city workers.
"They admitted to the crime", Police Major Anon Cherdchutrakulthong told Reuters.
"You would have to know Britteny to know this is not her", said Schneider.
Canadian Brittney Lorretta Katherine Schneider, left, and British Furlong Lee, second left, stand in front of Tha Pae Gate in Chiang Mai province, northern Bangkok, Thailand.
Schneider's mother said she was travelling in Thailand alone and has a "passion for travelling" and had made lots of friends travelling around the world.
The pair face up to 10 years in jail, a fine of up to 1 million baht or both, if found guilty, police said.