Shouting "We demand more democracy" and "One man, one vote", political activists, workers and families filed slowly from a park in the busy Causeway Bay shopping district towards government offices in central Hong Kong.
Before they set off, religious groups prayed that Hong Kong people would be allowed to elect their own leaders.
"We want full democracy: the right to elect our own chief executive and all members of the Legislative Council," said Richard Tsoi, a spokesman for the organisers who also led the July 1 march, which drew half a million people into the streets.
Organisers had hoped to attract 20,000 people to Thursday's rally, but the early turnout appeared to be lower.
One organiser estimated that some 10,000 people had gathered in the park as of 3 pm (0700 GMT), but said many others were expected to join the march along the way. A police spokesman refused to give an estimate.
"We want full democracy: the right to elect our own chief executive and all members of the Legislative Council"
Spokesman for organisers
Hong Kong's first mass demonstration of the New Year is widely seen as a test of whether public anger with the city's unpopular, China-backed leader has cooled in recent months.
It is likely to be closely watched by China's communist leaders, who are clearly worried that calls for more democracy on their doorstep could loosen their grip on Hong Kong and possibly spread to the mainland.
China largely controls this city of nearly seven million people on its southern coast, even though Hong Kong was promised a high degree of autonomy after Britain returned it in 1997.
Beijing selects the city's leader and has devised a system which ensures many legislators are pro-China.