Large Language Models (LLMs) have shown impressive results in multiple domains of natural language processing (NLP) but are mainly focused on the English language. Recently, more LLMs have incorporated a larger proportion of multilingual text to represent low-resource languages. In Arabic NLP, several Arabic-centric LLMs have shown remarkable results on multiple benchmarks in the past two years. However, most Arabic LLMs have more than 7 billion parameters, which increases their hardware requirements and inference latency, when compared to smaller LLMs. This paper introduces Arabic Stable LM 1.6B in a base and chat version as a small but powerful Arabic-centric LLM. Our Arabic Stable LM 1.6B chat model achieves impressive results on several benchmarks beating multiple models with up to 8x the parameters. In addition, we show the benefit of mixing in synthetic instruction tuning data by augmenting our fine-tuning data with a large synthetic dialogue dataset.