The origin and spatiotemporal properties of small-scale, intense electric fields and currents commonly observed by low-altitude, polar-orbiting satellites in the vicinity of discrete auroral arcs are investigated numerically. It is shown that these electromagnetic structures can be generated by the development of ionospheric feedback instability inside the resonant cavity formed by the ionospheric E-layer and an auroral acceleration region. The major factor regulating feedback unstable dynamics is the downward current channel of a large-scale, slowly evolving auroral current system interacting with the ionosphere. The downward current lowers the instability threshold by depleting the E-region plasma density and conductivity, thereby allowing the development of a large perpendicular electric field in the E-layer. The downward field-aligned current also produces a collisionless resistive layer in the lower magnetosphere where the parallel drift speed of current-carrying electrons exceeds a critical threshold for onset of microinstability. This resistive layer provides a highly reflective upper boundary for the resonant cavity confining small-scale Alfv¿n waves generated at the ionosphere by the feedback mechanism. The quality of the ionospheric resonator without the turbulent upper boundary is shown to be very poor for resonator modes with transverse wavelengths of the order of 10 km. Application of the simulation results to the interpretation of satellite measurements of small-scale electromagnetic structures in the auroral zone is demonstrated.