Dozens of activists burned a mock US flag as they protested at the US embassy in Manila on Tuesday, demanding that Washington hand over to the Philippines a US marine suspected in connection with the killing of a transgender Filipino that the demonstrators labelled a hate crime.

Jeffrey Laude, 26, was found dead, apparently strangled and drowned, beside a toilet bowl in a motel room in Olongapo city, north-west of Manila, shortly after he checked in late on Saturday, allegedly with a marine.

Police said they have identified the marine suspect with the help of a key witness. Authorities will file a murder complaint against him with prosecutors on Wednesday, the national police spokesman, Wilben Mayor, said.

A US marine spokesman, Colonel Brad Bartelt, said a marine was being held on board the USS Peleliu in the Subic Bay free port, about 80km (50 miles) north-west of Manila, in connection with a joint US navy and Philippine police investigation into Laude’s death.

About 3,000 US marines and navy sailors concluded two weeks of military exercises with Filipino counterparts last Friday and were to leave the Philippines this week.

The US Pacific commander, Admiral Samuel Locklear, who was in Manila for annual security talks with Philippine defence officials, initially ordered the Peleliu and other navy ships to stay in the Philippines pending an investigation into the killing. All the ships except the Peleliu were later cleared to leave the country as the investigation progressed, according to Philippine officials.

“We will continue to cooperate fully with the Philippine law enforcement authorities in every aspect of the investigation,” the State Department spokeswoman, Jen Psaki, said in Washington.

The thorny issue emerged amid a blossoming of security ties between the United States and the Philippines, which have both been vocal critics of China’s expansive territorial claims in the South China Sea. The longtime military allies signed a new accord in April that allows greater US military access to Philippine military camps across the country.

The military chief of staff, General Gregorio Pio Catapang, said the incident destroyed the positive image of the just-concluded military exercise, in which the suspect in the killing took part, but added that “this will not affect our relationship with the United States”.

“We’re alarmed and hurt because the victim was a fellow Filipino,” Catapang told a news conference. “We have to give justice for his untimely death.”

Police said Laude’s attacker may have been angered when he discovered in the motel room that Laude was a transgender individual or because of an argument sparked by other reasons.

On Tuesday, about 40 young activists waved red flags and yelled “US troops out now” in a protest that ended with the burning of a mock American flag at the heavily secured US embassy. Riot police stopped them from getting close to the seaside compound.

Two protest leaders tearfully demanded that the US military hand over the marine to the Philippine government, saying he should be detained in a local jail.

“This is just so abominable. It’s one of the worst hate crimes I’ve seen,” said Corky Hope Maranan, a leader of a group of transgender and lesbian Filipinos.

“If he remains in US custody, certainly he can escape from our justice system again. We don’t want another Daniel Smith,” Maranan said.

Smith was a marine who was found guilty and sentenced to life in prison on charges of raping a Filipino woman after a night of drinking in 2005, also at the Subic free port. A Philippine appeals court overturned Smith’s conviction in 2009, allowing him to leave the country.