Hundreds of police fired several rounds of tear gas shells to disperse small groups of protesters who emerged from alleyways in central Katmandu chanting "Down with autocracy, we want democracy." Many of the protesters hurled stones and scuffled with the police.
Security officials, who spoke on condition of anonymity due to policy, said they had orders to enforce a ban on rallies in Katmandu.
An Associated Press reporter at the scene said he saw 200 people being taken away in police vehicles and that 50 people had been injured, including six police officers.
The crackdown followed a series of raids in which security forces have detained senior politicians, student leaders and rights activists in recent days.
On Friday, several opposition leaders were placed under house arrest and more than 200 activists detained in an attempt to thwart protests against Gyanendra, who took power last year when he sacked an interim government.
The government said it had to prevent rallies because it had information that communist rebels planned to use them to launch attacks. The guerrillas have been fighting to replace the constitutional monarchy with a socialist government.
"We have to protect the people and maintain peace and tranquility," Home Minister Kamal Thapa said.
However, the rebels, who made an agreement with opposition political parties last year to put pressure on the king to restore democracy, said they would not disrupt the demonstration.
Gyanendra said hebecause the previous administration had failed to fight corruption or contain the long-running communist insurgency.
Last week, 150,000 people led by pro-democracy activists gathered in a southwestern Nepal town in the largest political rally since Gyanendra seized power.
Nepal has been in turmoil since Gyanendra, 55, suddenly assumed the crown in 2001 after his brother, King Birendra, was gunned down in a palace massacre apparently committed by Birendra's son, the crown prince, who also died. In all, 10 members of the royal family were killed.
Birendra introduced democracy to Nepal in 1990.
Riots shook Katmandu after the killings. Soon after, fighting intensified between government forces and the rebels, who control large parts of Nepal's countryside.
The rebels have been trying since 1996 to overthrow the government and establish a socialist state. More than 10,000 people have died since the fighting began.