The red-shirt protesters now occupy a swathe of central Bangkok
Thai Prime Minister Abhisit Vejjajiva has announced he is putting the country's army chief in charge of security operations.
In a televised address, he said Gen Anupong Paojinda would be in charge of restoring order, replacing Deputy Prime Minister Suthep Thaugsuban.
The announcement came as tens of thousands of anti-government protesters remained camped out in central Bangkok.
Earlier in the day efforts by police to arrest their leaders failed.
The red-shirt protesters are demanding that Mr Abhisit dissolve parliament and call fresh elections.
Last weekend the government tried unsuccessfully to clear protesters from part of the city. The failed crackdown left 23 people dead and more than 800 injured.
Mr Abhisit said the "unsuccessful efforts taken so far" against the protesters had prompted the government to "review structural issues".
He said replacing Mr Suthep would help the chain of command to become more "effective and swift".
The new authority would be able to "call in forces in a more united and integrated way, so that they can handle the terrorism-related activities specifically", he said.
Mr Suthep was in charge of Friday's failed operation to arrest several key red-shirt leaders.
He had announced that the police were there to take "decisive measures against terrorists" - the government's word for an alleged protest hard core.
But one protest leader, Arisman Pongruangrong, was filmed climbing down a cable and into a waiting car, while two others also escaped.
Gen Anupong said earlier this week that a political solution was needed to bring an end to Thailand's political crisis.
On Monday, he said the stand-off would end if parliament were dissolved - as the red-shirt are demanding - but that "when to dissolve depends on the outcome of negotiations".
But the BBC's Rachel Harvey in Bangkok says the rhetoric on both sides is hardening, leaving little apparent room for a negotiated settlement.
After his escape, Mr Arisman said the red-shirts' mission was "to hunt down Abhisit".
"This is a war between the government and the red-shirts," the Associated Press news agency quoted him as saying.