President Correa described the unrest "as an attempted coup by the opposition...history will judge them" [EPA]
The Ecuadorian government declared a state of emergency on Thursday after rebellious police angered by a law that cuts their benefits plunged this small South American nation into chaos, roughing up the president, shutting down airports and blocking highways in a nationwide strike.
President Rafael Correa denounced what he called "a coup attempt" as he was hospitalised due to the effects of tear gas used against him by angry police officers.
The state of siege puts the military in charge of public order, suspending civil liberties and allowing soldiers to carry out searches without a warrant.
Witnesses said there was looting in Quito and in the city of Guayaquil, and that many workers and school students were being sent home.
Elsewhere in Quito, uniformed police burned tires in protest at a proposal to cut their bonuses.
The Opec-member country of 14 million people has a long history of political instability. Street protests toppled three presidents during economic turmoil in the decade before Correa took power.
Members of Correa's own left-wing party are blocking legislative proposals aimed at cutting state costs, prompting him to mull disbanding Congress, a move that would let him rule by decree until new elections, one of his ministers said.
'Not a popular mobilisation'
Ernesto Gonzalez, head of the armed forces, said that troops remained loyal to Correa. "We are in a state of law. We are loyal to the maximum authority, which is the president," he told reporters.
Ricardo Patino, the foreign minister played down the severity of the protests. "This is not a popular mobilisation, it is not a popular uprising, it is an uprising by the police who are ill-informed," he told TV network Telesur.
Diego Borja, the central bank chief, called for calm and urged Ecuadoreans not to withdraw money from banks.
Ecuador's two-year-old constitution allows the president to declare a political impasse that could dissolve Congress until a new presidential and parliamentary elections can be held.
The measure would, however, have to be approved by the Constitutional Court to take effect.
"This a scenario that nobody would want, but it is a possibility when the conditions for change do not exist," Doris Solis, the policy minister, said after meeting Correa and other senior officials late on Wednesday.
"A decision still has not been made," she told reporters.
"Lawmakers in our coalition have the obligation to be coherent with our project for change."
More than half of the 124-member Congress are officially allied with Correa, but the president has blasted lawmakers from his own Country Alliance party for not going along with his proposals for shrinking the country's bureaucracy.
Police in the cities of Quito and Guayaquil protested at their headquarters. Officers in Guayaquil blocked some roads leading to the coastal city, Ecuador's most populous.
"Respect our rights," uniformed officers shouted.
Correa, a US trained economist, was first elected in 2006 promising a "citizens' revolution" aimed at increasing state control of Ecuador's natural resources and fighting what he calls the country's corrupt elite.
His government alienated international capital markets when it defaulted on $3.2 billion in global bonds two years ago.
Correa, an ally of Hugo Chavez, Venezuela's president, described the debt as "illegitimate."
Cash has been tight since then as the country relies on multilateral loans and bilateral lending to meet its international financing obligations.
Once in power, Correa backed the rewriting of the constitution to tilt the balance of power toward the executive.
He easily won re-election under the new constitution in 2009, and he is allowed to stand again in 2013.