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An estimated 20,000 Sikhs took to the streets - defying a curfew which was imposed after the killings on Monday.
 Effigies of Pakistan's ruler were burnt
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"Blood for blood," yelled the protestors.
When the procession approached the state government building, the police took action using tear gas, water cannon and baton charges.
Police say 100 people have been injured in the clashes.
One report said that several hundred Muslims in Jammu took refuge in the city's main mosque - fearing they would become targets.
Delhi protests
There were also protests in the Indian capital, Delhi, where Sikh and Hindu groups burnt the Pakistani flag and effigies of military ruler, General Pervez Musharraf.
 The massacre was the first such attack on Sikhs
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It was carried out by 40 to 50 gunmen, according to police.
Afterwards, the Indian Government said it had evidence that two Pakistani-backed militant groups were involved.
However, Kashmiri separatists have denied any involvement and Pakistan has demanded a full investigation.
The state assembly in Jammu and Kashmir has passed a unanimous resolution condemning the massacre.
Chief Minister Farooq Abdullah admitted his government had failed in anticipating the risk that the Sikhs face from militants active in the state.
Mr Abdullah said he would revamp the state's security system to provide adequate protection for all minority communities in Kashmir.
In the Kashmir Valley, Muslims are observing a general strike to mourn the massacre victims.
Shops, banks and educational institutions remained shut and traffic was off the roads.
The killing of the Sikhs was the first time they have been targeted as a community during the insurgency in Kashmir.
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