About 400 men and women gathered on Friday near the heavily guarded government headquarters, a few days after the high court revoked a 27-year-old law that banned public gatherings without prior authorisation.
They voiced support for proposals to slash the number of voter constituencies from 25 to five amid accusations that the small electorates created by the current system paved the way for vote-buying.
"We want it to be five," the demonstrators chanted.
They were wearing orange clothing and brandishing orange placards, adopting the colour that has come to symbolise pro-democracy movements throughout the world.
The reform bill is expected to be submitted to parliament on May 15 if it wins cabinet approval.
Bill for discussion
Ministers were due to meet to discuss the bill later on Friday.
Kuwait currently has 50 legislators elected by 25 constituencies. On polling day, voters choose two from a list of candidates on the ballot.
Kuwaiti women demonstrate
in favour of electoral reform
A ministerial committee has recommended reducing the electoral districts to five, and 29 legislators - liberal, Islamist and independents - have declared their support for the reduction.
"Five [constituencies] will cut down on bribery, vote-buying, tribalism and sectarianism," said one demonstrator, Ahmed al-Obaid, a 36-year-old businessman.
"When you have 35,000 voters, you can't buy them."
He said bigger electoral districts would not "end corruption, but will drastically reduce it".
The rally was organised by numerous youth organisations, mostly led by Westernised liberals.
Legislative elections are due next year.
Kuwait, a small, oil-rich state at the northern tip of the Gulf, enacted a big political reform last year when the parliament voted to grant women the right to vote and run for office.
Muslim traditionalist and conservative tribal politicians voted against the reform.
"Democracy has to grow"
one of the rally's organisers
However, the government rebuffs calls for political parties to be legalised, saying they are not necessary.
And the most important portfolios in the cabinet are held by members of the emir's extended family.
Reformists have also called on the government to lower the voting age from 21 to 17.
"Democracy has to grow," said Khaled al-Rawdan, 25, who leads one of the protest organising groups, the Kuwaiti Youth Society.