Thanks for your responses guys. He is a nicaraguense and they are both about the same size (2.5"). I ended up removing the firemouth and putting him back in his original 20 gal community tank. He was fine in there as was the last fish in originally and displayed very little aggression.
The chasing and biting went on literally all day to the point where the nicaraguense was up in the corners being attcked from below with damage to his fins. No matter where the other hid, the firemouth would keep attacking! I may return the firemouth in a week or so when the nicraguense has had chance to establish territory. I just hope it doesnt happen again the other way around!! Oh yeah, i forgot to mention there is plently of driftwood and I have built caves along the back wall with slate and rocks.