Police attempted to block access to the bazaar and other Uighur districts of the city and fired tear gas as the Han Chinese confronted groups of Uighurs.
One protester, clutching a metal bar, told the AFP news agency: "The Uighurs came to our area to smash things, now we are going to their area to beat them."
Urumqi's mayor, Jierla Yishamudin, said a "life and death" struggle was being waged to maintain China's unity.
"It is neither an ethnic issue nor a religious issue, but a battle of life and death to defend the unification of our motherland and to maintain the consolidation of all ethnic groups, a political battle that's fierce and of blood and fire," he told a news conference.
One official described Sunday's unrest as the "deadliest riot since New China was founded in 1949".
Xinjiang's Communist Party chief Wang Lequan announced during a televised address that a curfew would run from 2100 until 0800.
State-run news agency Xinhua quoted him as saying any ethnic violence was "heart-breaking" and blaming "hostile forces both at home and abroad" for the trouble.
China's authorities have repeatedly claimed that exiled Uighur leader Rebiya Kadeer is stirring up trouble in the region.
But she told the BBC she was not responsible for any of the violence.
"Last time during the Tibet riots, [the Chinese government] blamed the Dalai Lama, and now with the Xinjiang riot, they are blaming me," she said.
"I will never damage the relationship between two communities and will never damage the relationship between people. For me, all human beings are equal."
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