Waves of protesters blocked a main thoroughfare to Bahrain Financial Harbour on Sunday, a major business district in the Gulf Arab banking centre, facing off with police who fired clouds of tear gas and water cannon.
In one of the most violent confrontations since the military killed seven protesters on 17 February, youths erected barricades across the highway after overwhelming riot police near the Pearl roundabout, the focal point of weeks of demonstrations.
"The ministry of interior ... advised all protesters to return to the Pearl roundabout for their own safety," it said in a statement, adding that one policeman had been stabbed and one taken to hospital with head wounds after coming under attack.
One demonstrator showed a round red mark on his chest, which he said was a tear gas canister shot directly into him. Others showed Reuters rubber bullets they said were fired by police.
Bahrain, which is connected to Saudia Arabia via a sea causeway, has been gripped by its worst unrest since the 1990s after protesters took to the streets last month, inspired by uprisings that toppled the leaders in Egypt and Tunisia.
The kingdom, home to the U.S. Navy's Fifth Fleet, has seen weeks of rallies by its disgruntled Shi'ite majority, which says it is discriminated against by the Sunni royal family.
The Shi'ite Muslim opposition is divided on many issues but united in their call for a new government, accusing the current administration of corruption.
There have been few violent confrontations between police and protesters since the killings last month, but clashes have broken out almost daily between mainly Shi'ite Muslim opponents of the government and its Sunni supporters.
In Hidd, near Bahrain International Airport, a Reuters witness saw groups of Sunni residents checking the identities of those entering their neighbourhoods. At some entrances, vigilantes wore orange vests to identify each other.
In another incident, police fired tear gas to separate a group of Shiite Muslim protesters at Bahrain University from a group of Sunnis armed with sticks, witnesses said.
Sectarian clashes have also broken out in schools and streets in recent days, and rumours spread that shops owned by Shi'ite businessmen were attacked or closed in Sunni areas.
"These actions are intended to spread sectarian tensions," the Chambers of Commerce and Industry said in a statement.
"This sensitive situation that the kingdom is passing through cannot stand any more tension and escalation as the biggest loser from this... is the national economy that has been exposed to major losses in the recent period."
The largest Shi'ite party Wefaq, which did not organise the Harbour protest, said it would hold the interior minister responsible for any attack on protesters by armed civilians.
Thousands of the nascent February 14 youth movement still occupy Manama's Pearl roundabout, organising daily protests including a march on the palm estate of a royal palace on Saturday.
But the opposition appears increasingly split, between the mainstream, which wants peaceful rallies calling for a new government and constitutional reform, and smaller groups intent on bringing down the royal family with more provocative action.
An opposition activist who is part of a bloc of six moderate groups said the Financial Harbour protest was a step too far.
"It was a mistake to go to the Financial Harbour. There is enough room in the square for protests," said a moderate opposition activist who did not give his name. "It was a small group and it's not popular, the consensus was on the square."