Youths threw rocks, smashed windows and set homes on fire in the Comoro Bridge area of the city on Sunday.
Malaysian and Australian troops from the 2,200-strong international force deployed to quell the violence arrived in an attempt to halt the clashes and carried out a series of door-to-door searches.
Police seized tear gas canisters from rioters and troops detained one man after he was found with a firearm.
International aid agencies estimate that more than 100,000 people have been displaced in the unrest that began last month.
Aid workers estimate 70,000 people have fled their homes to more than 30 camps in Dili, and 30,000 more have abandoned the city.
A UN official warned on Saturday that the squalid camps are a potential breeding ground for more violence.
"We see these camps as a major flash point," said Gregory Garras, head of the UN refugee agency's East Timor emergency team, citing reports of fights and rumours that weapons were filtering into some camps.
The violence began following a decision by Mari Alkatari, the prime minister, to sack 600 of the country's 1,400-strong army for going on strike to protest against what they said was discrimination against those from the west of the country.
Battles between the military and the sacked troops, under the command of Major Alfredo Reinado, have descended into fighting between rival gangs from the east and west of the country.