Indigenous tribes, worried they will lose control over natural resources, have protested since April to force the Peruvian congress to repeal investment laws that allow firms to drill for oil and mine resources in the jungle.
Clashes took place on Friday after about 400 police moved in to clear a road blocked by around 2,500 indigenous tribes people, some carrying spears and machetes.
Protesters took dozens of police hostage and Peruvian troops launched rescue operations on Saturday in the town of Bagua Grande, about 1,400km north of Lima, after 14 of their colleagues died in clashes with natives.
At least nine police officers were killed as their colleagues attempted to rescue them.
An indigenous leader was quoted by the Associated Press news agency as saying that about 40 protesters had been killed in the clashes and that the police actions had been unprovoked.
The military said on Sunday that it was in control of Bagua Grande after an overnight curfew was imposed to defuse what is the worst crisis of Garcia's term.
"There is a conspiracy aimed at stopping us from using our natural resources for the good, growth and quality of life of our people"
He has been accused of enacting laws that aim to lure billions of dollars in foreign investment to the rainforest.
Garcia blamed the indigenous tribes' opposition to his plans on "elemental ignorance" and manipulation by outside interests, though he gave no indication which outside parties he was referring to.
"There is a conspiracy aimed at stopping us from using our natural resources for the good, growth and quality of life of our people," he said.
But the tribes, too, have accused the government of brutality.
Champion Nonimgo, a member of Peru's leading indigenous rights group, Aidesep, said: "We are dealing with a government that massacres Indians from helicopters. We are not going to hold talks under these conditions."
Hundreds of northern natives who sought refuge during the clashes at a Catholic mission in Bagua Grande have drawn up a list of dozens of missing people.
"We have been told that many of our dead brothers have been thrown into the Maranon river to cover up the killing," Carlos Anchanchi, one of the group's leaders, said.
The recent violence has highlighted deep divisions between elites in Lima and the rural poor, and threatened to derail the government's push to further open Peru to foreign investors.
Analysts say Garcia - whose approval rating is just 30 per cent - will probably have to fire senior cabinet members, including the prime minister, and roll back investment laws to end the stand-off.