Al Jazeera's Tony Cheng, who was outside Govermment House, said that after Monday's clashes Red Shirt protest leaders had become increasingly worried about the safety of the demonstrators, who included elderly women and young children.
As the protesters began to file away however, a protest organiser told Al Jazeera they were not giving up their fight to force the Thai prime minister, Abhisit Vehjjajiva, from power.
"There is no loss we're taking a step back in order to go forward," Suporn Atthawong said.
"We’ll be back at a later date."
"We have decided to call off the rally today because many brothers and sisters have been hurt and killed. We don't want everybody to suffer the same. And we will not allow more deaths."
At least two people were reported killed overnight, apparently in clashes with pro-government supporters.
More than a hundreds people are reported to have been injured.
On Tuesday, several protesters flashed victory signs while others wept as they walked away from Government House in central Bangkok or boarded buses provided by the military.
"There is no loss we're taking a step back in order to go forward"
Red Shirt protest leader
Earlier, Colonel Sansern Kaewkamnerd, an army spokesman, had said troops were ready to move against the protesters, who had been encamped around Government House since March 26.
Abhisit has praised the efforts of security forces, saying they had used "soft means" in handling the protests and had "prevented as much damage as possible".
But Thaksin Shinawatra – the former prime minister ousted in a 2006 coup, and the de facto leader of the Red Shirts - accused the military of covering up the number of people killed in the day's battles.
In an interview with Al Jazeera, Thaksin accused the military of firing at protesters and covering up killings by taking dead bodies away.
The allegation was repeated by one protester who told an Al Jazeera crew she had seen bodies being piled into trucks near the Ding Daeng intersection – scene of Monday's fiercest clashes.
|Abhisit praised what he said was the 'soft means' used by the military [Reuters]
Political tensions have simmered since 2006 when Thaksin was ousted by a military coup amid accusations of corruption and abuse of power, a year after he won re-election in a landslide.
He remains popular among Thailand's rural poor for the populist policies he introduced.
Despite being in self-imposed exile, Thaksin remains an influential force and has sent almost daily video and audio messages to Red Shirt rallies, supporting their call for the current prime minister to resign and hold fresh elections.
The Red Shirts took their cue from protests last year by rival "Yellow Shirts" who took to the streets in huge demonstrations against successive pro-Thaksin governments.
Those protests culminated in the shutdown of Bangkok's two airports and court rulings ordering the dissolution of the government, paving the way for Abhisit to take power in December.
The Red Shirts took to the streets last month, accusing Abhisit of taking power illegally.
They say the Thai elite – the military, judiciary and other unelected officials – are interfering in politics, and are seeking Thaksin's rehabilitation.