The rally was held under tight security following a devastating Islamic State (IS) group attack that killed nearly 300 in Baghdad on 3 July.
Hundreds of policemen and riot police were deployed, along with members of the Sarayah al-Salam, or Peace Brigades, a Shiite militia led by the cleric, Muqtada al-Sadr.
Earlier this year, Mr Sadr’s supporters stormed the Green Zone, a sprawling complex on the west bank of the Tigris River housing the prime minister’s office, parliament and Western embassies.
The protesters, mostly men in their late teens or early 20s, waved Iraqi flags and chanted slogans as patriotic music blared from loudspeakers.
“Uproot them, they are all thieves,” some chanted. A protester held a banner, reading: “We came out demanding reform, nothing else.”
Mr Sadr arrived at the rally but had to cut short his speech and hurriedly left when crowds surged forward, threatening a potentially deadly stampede.
Several protesters were injured as they surged forward or jumped off a ramp to get closer to Mr Sadr, whose forces battled American troops during the US 2003-2011 occupation of Iraq.
Yesterday’s rally is the latest challenge by Mr Sadr and his followers to prime minister Haider al-Abadi’s govern ment, which they accuse of not doing enough to combat corruption and introduce reform.
The stand-off comes at a time when the country is struggling to keep up its prolonged and costly fight against IS and address an acute economic crisis caused by plunging oil prices.
Earlier this week Iraq marked the anniversary of the 1958 overthrow of the monarchy and recent victories over IS with a military parade through central Baghdad amid tight security.
Members of the paramilitary Popular Mobilisation Forces, an array of Shiite militias set up in the wake of the IS blitz across much of northern and western Iraq in 2014, took part in the parade.
The celebration came on the heels of last month’s retaking of the city of Fallujah from IS and ahead of an expected assault on Mosul, the last major Iraqi city under IS control.