Riots have broken out in Belfast after police came under gun attack for the first time in the continuing violent loyalist flag dispute.

A taxi was hijacked and there are reports that a bus was set on fire just hours after shots were fired at police lines along the Newtownards Road in the east of the city, following a loyalist rally.

Police confirmed they were investigating reports of gunshots directed at officers.

A spokesman said two men had been arrested, including a 38-year-old who will face charges of attempted murder.

The shooting incident marks a significant change in the continued loyalist protests against Belfast city council's decision to restrict the flying of the union flag atop City Hall to 17 designated days. Until then, police had come under attack from petrol bombs, bricks, bottles and other missiles.

The chairman of the Police Federation, Terry Spence, said he had no doubt that paramilitaries had been involved in the violence.

"This is a very sinister development and quite clearly the police came under fire this afternoon from a gunman," he said.

"I think what it clearly does demonstrate is that there has been paramilitary involvement in these attacks on police and it has been orchestrated, in the case of east Belfast, by the UVF [Ulster Volunteer Force]."

Rioting continued along the Newtownards Road as 100 loyalists attacked PSNI officers.

At one stage police used a water cannon to force demonstrators away from the nearby Catholic Short Strand district. Vehicles were hijacked and set alight and there were also reports of petrol bombs being thrown. Earlier, riot squad officers had been bombarded with bricks, bottles, fireworks and smoke canisters.The protesters had been returning to the east of the city after a rally on Saturday lunchtime at City Hall.

Nine men and two women aged between 20 and 52 were expected to appear at a special late sitting of Belfast magistrates court in connection with riots over the previous 48 hours.

Nine police officers were injured in Friday's trouble, bringing the total number of police casualties since the protests began against the new flag policy to more than 40.

Tensions are at boiling point in east Belfast with local loyalists claiming that Saturday's violence exploded only after a baby was injured as demonstrators were passing by the Short Strand area. They alleged that republican youths from the district attacked the loyalist rally, first with missiles hurled across the so-called peace line. Loyalist sources said there was a serious danger of paramilitary ceasefires being broken due to what they claim were "heavy-handed" police tactics in the area.

But the MP for east Belfast, the Alliance party's Naomi Long, appealed for an end to three consecutive days of disorder in her constituency. Long, who has been the subject of a loyalist death threat, said it was "deeply disturbing" to hear that shots had been directed at the police.

"Peaceful and lawful protest is party of the democratic process, but the frequency with which the law is being broken by blocking roads and damaging property, and the repeated deterioration of protests into riots, means that it is irresponsible to continue to bring people on to the streets," the east Belfast MP said.

Long and other Alliance party representatives have come under attack from loyalists because the non-sectarian, centrist party holds the balance of power on Belfast city council. It was Alliance's compromise motion at Belfast City Hall last week that restricted the flying of the union flag there to 17 days. Nationalist councillors were pushing for the total end of flying the union flag atop Belfast City Hall. The compromise measure, however, was not enough for some hardline loyalists who wanted the policy restored where the flag was flown every day of the year.

At one stage on Friday the PSNI also had to deploy 39 armoured Landrovers to hold back 300 loyalists, many of them teenagers or younger.

It is understood that police received intelligence reports on Friday that loyalist paramilitaries would use live rounds against riot squadofficers if they fired plastic baton rounds at the rioters in east Belfast. The use of live rounds on the Newtownards Road will also raise questions about the stability of loyalist paramilitary ceasefires, with reports that members of the UVF were behind the shooting attack.

Police were advising motorists to avoid the Newtownards Road area between Bridge End and Holywood Arches. This was the third consecutive day that the PSNI has come under attack from loyalists in east Belfast. Police also came under attack in the Newtonabbey area, north of the city. Northern Ireland first minister Peter Robinson has called for an end to the street violence and labelled attacks on police officers as a "disgrace".