We study the gravitational instability and fragmentation of primordial protostellar discs by using high-resolution cosmological hydrodynamics simulations. We follow the formation and evolution of spiral arms in protostellar discs, examine the dynamical stability, and identify a physical mechanism of secondary protostar formation. We use linear perturbation theory based on the spiral-arm instability (SAI) analysis in our previous studies. We improve the analysis by incorporating the effects of finite thickness and shearing motion of arms, and derive the physical conditions for SAI in protostellar discs. Our analysis predicts accurately the stability and the onset of arm fragmentation that is determined by the balance between self-gravity and gas pressure plus the Coriolis force. Formation of secondary and multiple protostars in the discs is explained by the SAI, which is driven by self-gravity and thus can operate without rapid gas cooling. We can also predict the typical mass of the fragments, which is found to be in good agreement with the actual masses of secondary protostars formed in the simulation.