Protests against the government have become a regular fixture in Reykjavik
Icelandic police say they arrested 20 people and used pepper spray to break up a protest on Tuesday demanding the government resign over the economy.
An estimated 2,000 people attended the demonstration outside parliament in the capital, Reykjavik, in an effort to disrupt the first session of the year.
Some broke several of the building's windows. Others set off smoke bombs.
Iceland's economic crisis began in October, when its financial system collapsed in the global credit crunch.
The country's currency, the krona, has plummeted, while unemployment - once close to zero - is soaring.
The Icelandic finance ministry said on Tuesday that the economy was forecast to shrink by 9.6% this year and see no growth in 2010.
Protesters beat drums and pots, set off smoke bombs, and hammered on the windows of the Althing, Iceland's parliament building, on Tuesday in an attempt to force Prime Minister Geir Haarde's government to resign and call elections.
About 20 people received treatment after police used pepper spray
Some also threw yoghurt and snowballs at police stationed outside the entrance.
An official said the demonstration had caused a 15-minute delay to the parliamentary session, but that no business had been disrupted.
Later, police used pepper spray to disperse the crowd. About 20 people received medical treatment after being sprayed, police chief Sigurbjorn Jonsson said.
State radio and police officials said 20 people were also arrested.
Correspondents say protests against the government and central bank have become a regular fixture in Reykjavik since October.