The protests came in advance of crucial talks in New York at which US overseer in Iraq, Paul Bremer, is expected to urge the United Nations to help push forward his timetable for Iraqi sovereignty.
"Yes, yes to Islam, yes, yes to the Hawza, no no to terrorism," shouted the protesters who numbered about 4000.
The Hawza is a network of Islamic seminaries headed by a group of clerics considered a religious authority, or marjaa, including Grand Ayat Allah Ali al-Sistani, who has challenged the coalition's plan to install a provisional government by June.
"We demand that the will of the marja is respected and the provisional government is elected by the people," said one protester, as others brandished placards declaring "democracy means elections".
The procession, incorporating representatives from all walks of Iraq's Shia community, moved peacefully through the capital's streets towards the city's Mustansiriya university.
"We demand that the will of the marja (religious authority) is respected and the provisional government is elected by the people"
Many protesters chanted "Sistani, Sistani, we are your soldiers of liberation."
Al-Sistani, revered by the country's Shia, has been the most outspoken critic of the provincial caucus system by which the
coalition intends to choose a new leadership by 30 June, to steer Iraq to self-rule.
The reclusive cleric says such a government will remain in Washington's pocket, and that full elections, not scheduled until late 2005, should be held now, despite UN and coalition protests that Iraq is not ready.
On Friday, a day after thousands rallied behind al-Sistani's call in the southern city of Basra, the cleric warned a campaign of civil unrest would be unleashed if Washington refused to back down.