Thailand's Prime Minister Samak Sundaravej has declared a state of emergency in the capital Bangkok, after clashes left at least one person dead.
Dozens more were hurt in the worst violence seen in Bangkok for 16 years.
Mr Samak said he had "no choice" but to impose the measure in order to end the week-old revolt by supporters of the People's Alliance for Democracy (PAD).
But the army commander has promised that his men will not use force to disperse the protesters.
Separately, in a fresh blow to the government, the Thai election commission recommended that Mr Samak's People Power Party be disbanded over claims of vote-buying in elections last December.
The recommendation will not lead to immediate action against the party, as it must now be considered by the public prosecutor's office, but correspondents say it piles further pressure on Mr Samak's government.
If the prosecutor submits the case to the Constitutional Court and the ruling is upheld, Mr Samak and other top party leaders would be banned from politics for five years.
PAD supporters say the government is a front for Thaksin Shinawatra - the former prime minister, now in exile, whom the PAD was instrumental in removing in a coup in 2006.
The PAD has a passionate following in various parts of the country, especially Bangkok, and some powerful backers among the elite.
But it has little support in most of rural Thailand, which voted strongly for Prime Minister Samak, and Mr Thaksin before him.
The street clashes began shortly after midnight, when a screaming crowd of government supporters - armed with sticks and slingshots - ploughed into a group from the PAD, who have been occupying the prime minister's office.
Amid the ensuing fighting, some gunshots were fired - both sides are now reported to possess some firearms.
One person died, and TV pictures showed some of the 43 people injured lying bleeding on the ground.
For much of the time, police officers simply stood on the sidelines, our correspondent says. But by daybreak, the situation was reportedly calmer, with unarmed troops trying to keep the two sides apart.
Thai PM Samak Sundaravej on Bangkok's state of emergency
The prime minister said that emergency rule would not last long.
"No-one has the right to do such a thing as they have done," said Mr Samak, in a televised news conference.
"I had no other choice but to declare a state of emergency in Bangkok in order to solve the problem for once and for all.
"The military and police will carry out the implementation."
The army commander, General Anupong Paojinda, now has special powers to:
detain and remove people from any location
deploy troops to help police maintain order
ban gatherings of more than five people
impose restrictions on media reports that could "undermine public security"
But the BBC's Jonathan Head, in Bangkok, says Gen Anupong appeared decidedly uncomfortable with his new role when he spoke to reporters.
He repeated his insistence that the conflict between the government supporters and opponents was a political one which the army could not resolve - leaving Prime Minister Samak with his hands tied, our correspondent says.
The PAD insists its supporters will not move from the government building, despite the state of emergency.
26 Aug: Protesters occupy government buildings, demand the government step down
27 Aug: Authorities issue arrest warrants for nine protest leaders
28 Aug: PM Samak promises no use of force against the protesters
29 Aug: Police try to evict protesters but pull back; crowds blockade two regional airports
30 Aug: PM Samak rules out resignation, following a meeting with Thailand's king
31 Aug: Parliament meets for a special session on the protests
1 Sep: A late-night clash between pro- and anti-government groups leaves one person dead
2 Sep: PM Samak declares a state of emergency
"There are not enough jails to put us all into," one of the alliance leaders, Chamlong Srimuang, told thousands of PAD demonstrators.
One anti-government protester, a trained doctor who wishes to remain anonymous, told the BBC he had treated some of the injured after the clashes last night.
"The major injuries were taken to hospital straight away but I looked after the people with wounds and lacerations on the head," he said. "They couldn't tell me anything about what happened - they were very confused."
But he added that people had been apprehensive since the state of emergency was declared.
"Our leaders have tried to call on all the people of Thailand to come out and join the protest so that we have enough people to prevent violence. We believe that the more people know and join, then we remain safe," he said.
This crisis began exactly a week ago when thousands of PAD supporters took to the streets of Bangkok and forced their way into government buildings.
Protesters went on to shut down airports and rail services. Public sector unions said they would begin a nationwide strike at 43 state enterprises on Wednesday unless the prime minister stepped down.
The State Enterprise Workers Relations Confederation also threatened to cut off water, electricity and phone service at government offices and disrupt flights.
Our correspondent in Bangkok says there appear to be very few ways out of this crisis, with the country so bitterly divided.
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