The indigenous people say they will lose control over natural resources, have protested since April.
They hope to force congress to repeal laws that encourage foreign mining and energy companies to invest billions of dollars in projects in the rainforest.
Indigenous leaders said at least 22 protesters had been killed. The government reported the deaths of 11 police officers, some from spear wounds.
At least 100 people have been hurt.
Rich and poor
The bloodshed, which prompted calls for Peru's interior minister to resign, has underscored divisions between wealthy elites in Lima and poor indigenous groups in the countryside.
It has also exposed the central government's lack of control over some regions of the country.
|Alberto Pizango, centre, has accused the government of 'genocide' [EPA]
Alan Garcia, the president, whose approval rating is 30 per cent, has less support in rural areas, especially in the Amazon.
Critics say he has not done enough to pull people out of poverty, with the economic development enjoyed before the current downturn failing to reach the poor.
They also say his free-market policies and encouragement of foreign investment only benefits the elite.
At the heart of the dispute are laws passed last year as Garcia sought to bring Peru's regulatory framework into compliance with a free-trade agreement with the US.
After Friday's violence, cabinet members accused protesters of being inflexible and of refusing to negotiate. A curfew has been threatened.
Indigenous leaders from more than 60 groups said Garcia's allies had acted in bad faith when they blocked a motion earlier in the week to open debate on a law that tribes want overturned.
Alberto Pizango, an indigenous leader in Lima, said on Thursday: "I hold the government of President Alan Garcia responsible for ordering this genocide."
A state of emergency has been declared in areas of the Amazon, suspending constitutional guarantees.
Protesters declared an "insurgency" against the government in response to the government's decision, but later withdrew their declaration.