Thousands gathered in the main square of the Serbian town of Cacak to demand the holding of free elections.

While the demonstrations took place, Mr Milosevic reportedly called for reforms and the development of a market economy in Yugoslavia.

The BBC's Brian Hanrahan: "Every route into the town is blocked"

The state-run news agency Tanjug reported that the president told Yugoslav leaders that "reconstruction and reforms" were now the priority.

Others who had set out from Belgrade to take part in the demonstration were turned back at police checkpoints on the way. Journalists were also prevented from reaching Cacak, including two from the BBC.

Explosion as rally started

There was a small explosion as the rally began, apparently caused by a stun grenade. But no one was injured and the demonstration continued.

Police told organisers that the rally did not have official authority, but they say they have received no written notice of the ban.

"The police have banned the meeting but only unofficially, and this just shows that the regime is in panic. But we are not afraid," said protest organiser Verica Barac.

Public gatherings had been banned during the Nato air campaign but the country is no longer officially in a state of war.

'Serbia is feverish'

The BBC's Brian Hanrahan: "A trial of strength"

The protest has been organised by the country's main opposition coalition, Alliance for Change.

"Serbia is feverish," said Goran Svilanovic, leader of coalition member Civic Alliance.

The group is planning to hold more rallies over the summer in other towns and cities.

The rally began with a blessing from a Serbian Orthodox priest. The Orthodox church has added its influential voice to calls for President Milosevic to go.

The country's only independent trade union said it would join the demonstration in protest against low wages and soaring unemployment.

But the Alliance for Change has been dismissed by one prominent opposition figure, the former deputy prime minister Vuk Draskovic, as a group of small parties with no influence.

Rising discontent

Reservists blocked roads in Serbia

Discontent has apparently been growing throughout Serbia since the end of the conflict over Kosovo.

A week ago, Yugoslav army reservists blocked roads in Serbia, demanding unpaid wages for service in Kosovo. And at a weekend football match, thousands of fans shouted anti-Milosevic slogans.

A group of 50 Serbian intellectuals in Belgrade added to the pressure on Mr Milosevic, by calling for his resignation over his role in the "final defeat of national interests and the countless graves of innocent Serbs".

KLA fighters disarm

In Kosovo itself, the first key deadline for the phased disarmament of the Kosovo Liberation Army (KLA) passed at midnight on Monday. The international intervention force, K-For, said the operation was going smoothly.

"We have every reason to believe that the [KLA] is in compliance with the undertaking for disarming the province," said K-For spokesman Major Kenneth Pickles.

The BBC's Duncan Kennedy reports: "Some have already set their uniforms and the war aside"

Major Pickles said the KLA had met the Monday midnight deadline for establishing sites where they would hand in their weapons, to be guarded by peacekeepers.

The first weapons were handed in on Monday, but the KLA has three months to complete the process. Fighters are no longer allowed to wear uniforms or carry weapons in public.

The move is intended to help reassure Kosovo's Serbs, who are leaving the province in droves, fearing revenge attacks by Kosovo Albanians.

(Click here to see a map showing refugee movements)

Church warning

For its part, the Serbian Orthodox Church has appealed to the international community to stop Serbs being forced out of Kosovo.

In a letter to US President Bill Clinton, the UN, Nato and Western politicians, Church leader Patriarch Pavle warned that the province might soon become an ethnically-pure Albanian territory unless peacekeeping troops prevented attacks on Serbs.

The Church has also attacked President Milosevic for precipitating the Serbian exodus from Kosovo by provoking the Nato bombing.

• What future for the KLA?
• Analysis: The UN's task in Kosovo
• Eyewitness: A Mitrovica homecoming
• KLA arms deadline ends
• Orthodox Church attacks Milosevic