The protesters have vowed to keep rallying until the government steps down
Thai Prime Minister Abhisit Vejjajiva has rejected a demand from protesters to resign and call elections.
He spoke on national TV as tens of thousands of demonstrators gathered outside the barracks where he is based.
The rally, led by red-shirted supporters of ousted PM Thaksin Shinawatra, was one of the largest in recent years.
It passed off peacefully, but two soldiers were hurt when grenades exploded inside another army base.
An army spokesman said the grenades appeared to have been fired into the compound, but said it was not clear who was responsible.
AT THE SCENE
Rachel Harvey, BBC News, Bangkok
With the government appearing determined to resist their demands, the red-shirts decided to up the stakes.
Tens of thousands of demonstrators thronged the streets while loudspeakers mounted on trucks delivered a high-decibel repetition of their demand for fresh elections. A line of soldiers in riot gear faced them from inside the iron fence of the army compound, but the mood was once again good-natured.
As the day wore on, the army used its own loudspeakers to broadcast jazz tunes composed by the Thai king.
The security forces seem to have decided to wait it out in the hope the protests eventually run out of steam, but as night fell the protesters had regrouped in the old part of Bangkok, in no mood yet it seems to give up.
Early in the day, crowds of demonstrators gathered outside the headquarters of the 11th Infantry Battalion barracks in the north of the Thai capital.
Several thousand extra soldiers were sent to reinforce security at the barracks - to which the prime minister had moved after the demonstrators set up camp around Government House.
As the protesters' deadline for him to step down passed, Mr Abhisit appeared on national television flanked by ministers and coalition allies.
"The protesters have demanded that I dissolve the house before midday (0500 GMT) today, but the coalition parties agree the demand cannot be met," he said.
"Elections must be held under common rules and genuine calm. We have to listen to other people's voices, not just the protesters."
Mr Abhisit then left the army base by helicopter, saying he wanted to inspect the traffic.
The BBC's Rachel Harvey, who was outside the barracks, says it is not clear where he is now.
FROM GLOBAL VOICES
To me, the most interesting thing to observe were the ordinary Thais - vendors, people coming out of their shops, and people streaming from smaller sub-sois [streets] to watch - who were not wearing red, but were cheering as well
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