Around 270 people were injured in the fighting, many of them police officers.
The protest was led by former senior members of Thaksin's now disbanded Thai Rak Thai party.
The fighting escalated when police moved to detain protest leaders as they spoke from a makeshift stage on the back of a truck near Prem's house.
After the first effort to arrest the protest leaders failed, the crowd began throwing bottles and other objects at the security forces as they retreated.
"The police have exercised utmost patience but they [the demonstrators] have tried in every way to hurt the security officials there and break through the blockades the police set up outside the house," said Colonel Sansern Kaewkamnerd, spokesman for the military's Council for National Security.
"Policemen definitely overreacted ... they beat protesters up with batons"
"They are trying to create chaos and cause a rift in society."
The council is comprised of the military chiefs who staged last year's coup and remain the power behind the interim government they installed.
Sansern said there were 3,000-5,000 protesters, and said that most were "misinformed" about the political situation, and that some were paid to take part.
His allegations were rejected by protest organisers who accused the police of abuse.
"The police didn't try to negotiate with protest leaders at all," Anukorn Waithanomsak, a protest leader, told the Associated Press.
"Policemen definitely overreacted ... they beat protesters up with batons and dozens of protesters were injured."