The rally outside Government House was expected to last for three days in the runup to a weekend Southeast Asian summit hosted by Prime Minister Abhisit Vejjajiva at a seaside resort away from the capital. Abhisit, who was elected prime minister in a parliamentary vote in December and leads a shaky coalition government, has refused to call an election, saying reviving the economy is his top priority.
The streets were calm outside Government House where hundreds of soldiers and police, armed with batons and shields, waited for the demonstrators from the United Front for Democracy against Dictatorship (UDD).
"Let's come out in full force. Let's come out and show how many supporters there are for justice," an announcer said on a pro-UDD radio station.
Leaders of the red-shirted UDD have promised not to storm Government House, which was occupied for three months last year by the royalist, yellow-shirted People's Alliance for Democracy (Pad), a rival protest group.
The UDD is piling pressure on Abhisit to sack his foreign minister for being a cheerleader for the Pad, prosecute Pad leaders for their occupation of Government House and Bangkok's two airports last year, and restore the 1997 constitution scrapped after the 2006 coup that ousted Thaksin.
Abhisit has refused to meet their demands, but the protracted political crisis is distracting policymakers from fixing an economy on the brink of recession.
Thailand's economy suffered its biggest contraction in memory in the fourth quarter of last year after exports collapsed due to the global economic slowdown.
The state planning agency said on Monday the economy would probably shrink in 2009, which economists said guaranteed a Bank of Thailand interest rate cut of at last half a point on Wednesday.
Analysts say the outlook for political stability remains bleak as long as the rift between Bangkok's royalist military and business elite, who accuse Thaksin of corruption, and rural voters who loved his populist policies, remains unresolved.
Broadly speaking, the UDD oppose the 2006 coup that removed billionaire Thaksin. The Pad played an integral part in the putsch, as well as the political upheaval that put paid to two elected pro-Thaksin governments last year.
The UDD accuse Abhisit of being a stooge of the army and the Pad, a charge he denies. His foreign minister, Kasit Piromyas, was regular speaker at Pad rallies.