Protesters have been blocking access to key government offices in the capital for the past week, but the collapse of the summit was a huge embarrassment to Mr Abhisit and he has vowed to restore order, says the BBC's Jonathan Head in Bangkok.
Our correspondent says that what began as a show of strength by the government's opponents two weeks ago has turned into a battle for control of the capital which neither side feel they can afford to lose.
One of the leaders of the protests was arrested after the PM vowed to prosecute them.
Arisman Pongruengrong, who spearheaded the protests by supporters of ousted Prime Minister Thaksin Shinawatra, was arrested on Sunday after returning to Bangkok from the resort of Pattaya - venue of the cancelled summit talks.
Under the state of emergency, gatherings of more than five people can be banned, media reports can be censored, and the army can be deployed to help police maintain order.
But protesters have continued roaming around the streets.
"It's not right. To declare the state of emergency is only to hurt the country more than before," one woman protester said.
PM Abhisit says the emergency is meant to restore order
Earlier, there were chaotic scenes at the interior ministry, where protesters forced their way into the building as Mr Abhisit was delivering a televised address to announce the state of emergency.
They then attacked a car they thought was carrying the prime minister, hitting it with sticks and concrete slabs and throwing rocks and furniture at it.
The protesters have been demanding the resignation of the prime minister, and have been urged by their leaders to attack him and his government at every opportunity.
Soldiers fired warning shots as red-shirted protesters stormed the ministry, but initially made no attempt to stop them.
In a new address, Mr Abhisit said: "I want to tell protesters that you have no right to break the law or to restrict other people's rights.
"Otherwise the government must implement further measures under the state of emergency."
His deputy warned against excesses by the security forces.
"Authorities, policemen and soldiers, please practise your authority accordingly, and strictly within the law. Otherwise, it will bring more damage to the country," he said.
Last year, the government imposed a state of emergency on several occasions, but the army refused to enact the measures.
A very small element of the Thai people seem to have gone totally insane and are hell-bent on destroying their country which has financial troubles enough without these maniacs
It is unclear if the army will be prepared to take action this time around.
The state of emergency was last used to crack down on yellow-shirted protesters who had laid siege to Bangkok's airports last November.
The crisis eventually led to Mr Abhisit's government taking over from allies of Thaksin.
Our correspondent in Bangkok says the problem for Mr Abhisit is that he rode to power on the back of protests that were just as illegal, and may look hypocritical if he only goes after the red-shirted protesters who embarrassed him.
Pre-summit street protests in the capital this week drew up to 100,000 people.
Mr Thaksin himself, who remains in self-imposed exile to avoid a two-year jail term for corruption, has welcomed the protest in Pattaya.
"I thank the Red Shirts in Pattaya who showed strength," he told a rally of supporters in Bangkok by telephone late on Saturday. "In the next few days we will see real change."
Officials say months of turmoil have lost the country $6bn in tourist revenue, just as the economy is taking a hit from collapsing exports.
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