Despite President Carlos Mesa's guarantee of safety for a key session of Congress later on Tuesday, only a quarter of the country's lawmakers ventured into the city's narrow colonial streets and past heavily guarded police barriers.
The main opposition and indigenous leader Evo Morales tried to strike a note of harmony in Congress by saying he "hoped it will be a historical session to unite Bolivia".
But outside, protesters from the indigenous city of El Alto, many of them university students, launched dynamite at police with slingshots. In the rarefied air of the world's highest capital, protesters and office workers scurried to escape clouds of tear gas.
Interior Minister Saul Lara said "activists" had been arrested, but he did not specify how many.
The protesters want lawmakers
to nationalise the energy sector
Mesa, a political independent, came to power in 2003 after Indian protests ousted his pro-Washington predecessor. But despite promising to heal the social wounds of South America's poorest nation, he has struggled to stay in office amid growing Indian political militancy.
South American neighbours, including Brazil and Argentina, worry about turmoil on their doorstep and United Nations Secretary-General Kofi Annan has urged Bolivians to resolve their differences democratically.
The main demand of the mostly indigenous protesters is for a share of Bolivia's vast natural gas reserves, the second largest in Latin America.
Many in the poor indigenous majority think an energy law approved by Congress two weeks ago falls short on state control and some want full nationalisation of the sector now dominated by foreign firms.
Downtown La Paz was also at a standstill as protesters who streamed down from El Alto erected stone barriers on the main road, leaving the capital cut off from its international airport and disrupting public transport.
Mesa has said repeatedly he will avoid the violent repression of October 2003 that toppled his predecessor Gonzalo Sanchez de Lozada, who fled after a bloody revolt against his plans to export gas through Chile, against which Bolivia has fought a number of wars.