Police say more than 60 people were arrested and are being held in police stations around the city following Sunday's protest.
Organisers put the number of arrested in the hundreds.
Earlier a crowd estimated in the tens of thousands had gathered outside Kuala Lumpur's iconic twin towers from before dawn, defying a government ban.
Rally organiser, the Hindu Rights Action Force (Hindraf), had called the protest over alleged discriminatory policies which favour ethnic Malays.
"Malaysia's Indian community has been short-changed over the past 50 years," P. Uthayakumar Hindraf legal adviser and one of the rally's organisers told Al Jazeera.
But the government banned the demonstration saying it risked inflaming racial tensions in multi-ethnic Malaysia.
Indians are the third largest ethnic group in Malaysia and make up about seven per cent of Malaysia's population.
The protest was the second in two weeks to be forcefully broken up by police.
Earlier this month police used tear gas and chemical-laced water cannon to break up a protest calling for electoral reform.
In the days before Sunday's protest police had set up roadblocks across Kuala Lumpur and major highways leading into the city in an effort to prevent protesters from gathering.
Aside from the rally in central Kuala Lumpur, several thousand protesters gathered at the Batu Caves temple site on the outskirts of the city.
Organisers had promised a peaceful rally and planned to submit a petition to the British High Commission addressed to the Queen of England, blaming colonial era policies for the community's present predicament.
A lawsuit filed recently by Hindraf is seeking $4 trillion in compensation for the estimated two-million ethnic Indians whose ancestors were brought over to Malaysia as indentured labourers by Britain in the 1800s.
Malaysia was a British colony before gaining independence in August 1957.
But police surrounded the high commission and moved to break up the protest after demonstrators ignored orders to disperse.
Dressed in full riot gear, some carrying automatic weapons, police fired dozens of rounds of tear gas and chemical-laced water cannon into the crowds, causing protesters to scatter and run for shelter in nearby office buildings and banks.
Some of the protesters drenched in water laced with chemical irritants ripped off their shirts and shouted at the police to stop.
Others were seen doubled over on the road, retching and coughing from the effects of the tear gas.
"After 50 years, what freedom do we have?" said one protester. "The local newspapers say we're all united but we Indians have no rights."
Several times cheers went up as protesters lobbed tear gas canisters back at the police who were lined up fronting the twin towers.
Punesh, a secretary at a legal firm in the city, said the gathering would have remained calm if the police had allowed a group of people to submit the signatures to the British high commission.
"But police provoked public violence and people began retaliating to the water cannon and tear gas," she said. "I saw police catch a man and cover his head before beating him in full view of the public. It is shocking."
'Treated like criminals'
Another protester complained that ethnic Indians were born in Malaysia but are treated as second- or third-class citizens by the government controlled by ethnic Malays.
"We have come from far and near to gather peacefully but we're being treated like criminals," he said.
"No one is carrying any weapons so why are the police being this violent against us?"
Shanmugam, a protester who had travelled to Kuala Lumpur from the northern state of Kedah, said the government was using the riot police to attack the peaceful march.
"We're going along the way of India's Mahatma Gandhi… in a peace march for equal rights."
Samy Vellu, the president of the Malaysian Indian Congress and the only ethnic Indian in the Malaysian cabinet, denounced Sunday's protest as "an opposition ploy to smear the government's image."
"We do not support street demonstrations," he said in a statement. "We believe in working within the system. We have been working within the system to resolve the problems faced by the Indian community."
"There is still a lot more to be done for the Indians and we'll continue with our struggle."
Güncelleme Tarihi: 26 Kasım 2007, 15:11