Armed police blocked off streets in Algiers and set up security barricades at strategic points along the march route and outside the city to try to stop busloads of demonstrators from reaching the capital.
Armed police were also posted near newspaper headquarters.
Organisers of the march estimated some 10,000 people had flooded Algiers, where they skirmished with riot police attempting to block off streets and disperse the crowd.
News reports suggested security forces outnumbered demonstrators. The Algerian daily La Liberte said some 30,000 riot police had been deployed in the capital.
Ali Yahia Abdenour, a human rights activist, said more than 400 people - including women and foreign journalists - have been arrested.
Protesters chanted slogans including 'No to the police state' and 'Bouteflika out,' a reference to President Abdelaziz Bouteflika, who has been in power since 1999.
Under the country's long-standing state of emergency, protests are banned in Algiers, but the government's repeated warnings for people to stay out of the streets apparently fell on deaf ears.
The march comes at a sensitive time in Algeria - just a day after the uprising in Egypt that forced Hosni Mubarak to abandon the presidency after 30 years. It also comes on the heels of a 'people's revolution' in neighbouring Tunisia that pushed President Zine El Abidine Ben Ali into exile on January 14.
Some observers have predicted Algeria could be the next Arab country hit by the wave of popular protests.
The democratic domino-effect has electrified the Arab world and led many to ask which country could see uprisings in a region where a mix of authoritarian rule and popular anger are the norm.
Organised by the Coordination for Democratic Change in Algeria, an umbrella group of human rights activists, unionists, lawyers and others, Saturday's march was aimed at pressing for reforms includig greater democratic freedoms, a change of government, and more jobs - although didn't include any specific call by organisers to oust Bouteflika.
Widespread unrest in Algeria could have implications for the world economy. Although unemployment is high and poverty is endemic, it is a major oil and gas exporter, but many analysts say an Egypt-style revolt is unlikely because the government can use its energy wealth to placate most grievances.
'We are ready for the march,' said Mohsen Belabes, a spokesman for the small RCD opposition party which is one of the organisers of the protest.
'It's going to be a great day for democracy in Algeria.'
A heavy police presence is routine in Algeria to counter the threat of attacks by al Qaeda insurgents, but more than the usual numbers were already in place hours before the start of the protest.
At May 1 Square, the starting point for the planned march not far from the city's Mediterranean port, at least 15 police vans, jeeps and buses were lined up.
A similar number were in a nearby side-street outside the city's Mustapha hospital.
At several road junctions, the police had parked small military-style armoured vehicles which are rarely seen in the city, while more than a mile from the centre officers in body armour were standing outside a fuel station.
Other Arab countries have also felt the ripples from the revolts in Egypt and Tunisia. Jordan's King Abdullah replaced his prime minister after protests and in Yemen, President Ali Abdullah Saleh promised opponents he would not seek a new term.
Protest organisers in Algeria - who say they draw some of their inspiration from events in Egypt and Tunisia - say police may turn people away before they can reach the march in the capital, or parallel protests planned for other cities.
'Algerians must be allowed to express themselves freely and hold peaceful protests in Algiers and elsewhere,' human rights group Amnesty International said in a statement.
'We urge the Algerian authorities not to respond to these demands by using excessive force.'
Many Algerians fear any prospect of conflict after years of a brutal insurgency by Islamic extremists that has left an estimated 200,000 dead.
There is no specific call by organisers of the protest march to oust President Abdelaziz Bouteflika.
However, a markedly anti-government sentiment was in the air. Under the headline "Mubarak pushed from power," a cartoon in La Liberte showed the score Egypt-1, Algeria-0 and a fan waving an Algerian flag saying 'we've got to tie the score'.
With scattered strikes and clashes, including five days of rioting in early January, the atmosphere in Algiers has been tense.
There have been numerous copy-cat suicides, and attempted suicides, in Algeria like the self-immolation attempt by a young man that set off the Tunisian protests in mid-December.
The government says it refused permission for the rally for public order reasons, not because it is trying to stifle dissent.
It says it is working hard to create jobs, build new homes and improve public services.
In an attempt to head off anti-government unrest, the authorities have cut prices for sugar and cooking oil, bought huge quantities of grain to ensure bread supplies and promised to lift a 19-year-old state of emergency in the 'very near future'.
The protest is not backed by Algeria's main trade unions, its biggest opposition parties or the radical Islamist groups which were banned in the early 1990s but still retain grassroots influence.
The march 'is likely to be violent, but unlikely to destabilize the regime,' said Eurasia Group, a political risk consultancy.
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