The demonstration came on the 18th anniversary of the deaths of 5000 local people.
The protesters destroyed a memorial and set fire to a one-storey museum in protest over the lack of local services.
Witnesses said shooting broke out after people heckled Kurdish officials making speeches to commemorate the attack which most blame on the forces of Saddam Hussein, the former Iraqi president.
Three local journalists said they saw several casualties, including at least one person who appeared to have been killed. They said the museum had been burnt down.
A hospital doctor said one person had been killed and eight wounded when Kurdish security forces opened fire on the protesters as they stormed the museum.
The violence started as Iraq's Kurdish leaders sat in parliament in Baghdad just before it was due to convene three months after elections.
The anger in Halabja could be embarrassing for Kurdish leaders who have managed to keep the Kurdish north stable as fighting has ripped apart Iraq.
Hajem al-Hassani, the outgoing speaker of parliament, called for a moment's silence in the chamber to commemorate the Halabja attack, one of the most potent symbols of Kurdish suffering during Saddam's rule.
Kurdish politicians have often used Halabja to try to unite the ethnic group, whose fortunes changed after a US-led invasion overthrew Saddam in 2003 and elections which swept them to power along with the country's Shia Muslims.