An army spokesman said soldiers trying to clear the Din Daeng intersection were shot at by protesters before dawn, and had fired back.
Soldiers fired hundreds of rounds from their M-16 automatic rifles as they advanced, though it was unclear whether they were firing at or over the protesters.
Colonel Sansern Kaewkamnerd told local radio that troops had fired into the air in response to tear gas and smoke bombs thrown at them by protesters, before firing in the protesters' direction.
"We will start with soft measures and proceed to harder ones. We will avoid loss of life as instructed by the government," he said.
Sean Boonpracong, the international spokesman for the United Front for Democracy Against Dictatorship group that has been leading the Red Shirts' protest, criticised the military's "aggressive tactics ... shooting at unarmed civilians".
But he admitted to Al Jazeera that "some of us have to fire back in defence with handguns".
The spokesman demanded the army to stop its operations immediately and that Abhisit resign, dissolve parliament and call fresh elections.
"If things get any worse, there will be more blood and the government will be responsible," he said, adding that if the army started shooting at protesters, they may occupy Government House for their "safety".
Al Jazeera's Tony Cheng, reporting from the scene just hours after the clashes, said tensions remained high.
Far from breaking the spirit of the protesters, the so-called Red Shirts were showing greater defiance than ever and saying they were prepared to spill their blood in protests, our correspondent said.
"If things get any worse, there will be more blood and the government will be responsible"
Sean Boonpracong, United Front for Democracy Against Dictatorship
Leaders had called for protesters to spread out across the city to converge on the Government House offices of Abhisit Vejjajiva, the prime minister, later on Monday morning.
The early morning clash had not yet appeared to have spread to the protesters' main camp at Government House, several kilometres away, and the authorities had not moved to clear that area of tens of thousands of protesters.
According to police General Vichai Sangparpai, up to 30,000 demonstrators continued to be scattered around Bangkok.
Protesters had taken over public buses and jumped on military vehicles in defiance of Abhisit's declaration of emergency law on Sunday.
Panitan Wattanayagorn, a spokesman for the government, said troops had successfully cleared the busy intersection near the capital's Victory Monument landmark where about 100,000 people had gathered late last week to demand the resignation of Abhisit Vejjajiva, the prime minister.
"The operation is complete, and a number of protesters have been detained in safe places. The operation is in line with the law, accountable and reasonable," Panitan said on national television, soon after the military crackdown.
But our correspondent said protesters had returned to the intersection hours after the clash and had blocked off roads again, with soldiers showing "steely resolve" but not moving against the protesters again.
'No martial law'
Saying that Abhisit remained in charge of the country and that there was "no martial law", Panitan told Al Jazeera that the prime minister had "delegated power in terms of operations" to a committee led by several military officers who were "handling the emergency situation".
|The government says there has been no military coup [EPA]
The police - whose loyalty to Abhisit was questioned on Sunday when some policemen were seen putting on red shirts in support of Thaksin and joining protest rallies – would be "jointly operated, led by the military", Panitan explained.
He added that the government forces would "increase the momentum" of operations against protesters and move to disperse demonstrators scattered around the city.
He also said that the military had been given live ammunition but were "under strict orders not to aim at the people or not to shoot at the people", only to use it in self defence.
Local television footage showed injured people being taken away after Monday's pre-dawn clash as soldiers secured an area close to the largest military base in the city. Most of the injured appeared to be demonstrators.
Call for revolution
The hour-long confrontation that began around 4am (21:00 GMT) was the first serious clash between the demonstrators and government forces after weeks of protests by the so-called Red Shirts who support Thaksin Shinawatra, the prime minister ousted in a military coup in 2006.
|Protesters have defied Abhisit's declaration of emergency and warnings to go home [Reuters]
Thaksin, who continues to wield considerable political influence in the country despite being mostly in exile since September 2006, called on his supporters to overthrow the government on Sunday, promising to return if the government moved to crack down on protests.
Thaksin's call for revolution came after Abhisit, who has been in office for about four months, declared a state of emergency in the city on Sunday, following protests on Saturday that forced the cancellation of a regional summit in the nearby town of Pattaya.
Abhisit had asked protesters to go home on Sunday or face tough action as tanks and troops took up positions in the capital.
"The government has tried all along to avoid violence, but the protest has developed and they have used actions incompatible with the constitution," the prime minister said.
Struggling for control
In signs that the government was losing control on Sunday, demonstrators swarmed around two armoured vehicles outside a luxury shopping mall in downtown Bangkok, before directing the soldiers to drive the vehicles back to a military camp.
|The military said it would 'start with soft measures and proceed to harder ones' [AFP]
Outside the interior ministry, Abhisit's car was attacked with poles, a ladder and flower pots.
At least six people were injured in that incident, including two security guards for the prime minister, and one of Abhisit's senior political aides and his driver, as police nearby did nothing.
Eager to show that he was still in control and commanded the loyalty of the armed forces, Abhisit appeared on television in the early hours of Monday flanked by commanders of the army, navy, air force and the deputy police chief.
"I can confirm that the government and security agencies are still unified. You can see all the heads of the armed forces meeting with me right now," he said.
T Kumar, the Asia and Pacific director at Amnesty International USA, told Al Jazeera that the military's action against Thaksin supporters on Monday contrasted sharply against its inaction against anti-Thaksin demonstrators who held protests last year against two successive governments filled with Thaksin allies.
"It was a very calculated move to support the current government, which the military did not do when the current prime minister was in the opposition," he said.
Those protests eventually led to court rulings that deposed the pro-Thaksin governments and ushered in Abhisit's government.
Kumar said there was a fear that the military would go on hunting demonstrators and making more arrests, which would lead to more violent protests, military rule and a "deeper division than ever" in the country between rich urban elites and the rural poor.
"The best way to control this situation is to have an election at this moment," he said that if Thailand's Southeast Asian neighbours and the international community did not press the government to hold elections, the country would "go downhill".