Thousands of protesters have marched through Malaysia's capital to declare support for the embattled government and assert the political dominance of the Malay majority, in a demonstration whose racial overtones sparked concern.

Riot police used water cannons to disperse thousands of red-shirted protesters trying to break through barricades at Kuala Lumpur's Chinatown neighbourhood, shouting slogans denouncing ethnic Chinese community and opposition party leaders.

There were no reports of major injuries.

The demonstration was organised by figures in the ruling United Malays National Organisation (UMNO) in response to massive street rallies last month that called for prime minister Najib Razak's resignation over a financial scandal.

Malay demonstrators paralysed bustling areas of Kuala Lumpur as they marched through, chanting slogans targeting multi-ethnic Malaysia's Chinese minority.

"Our Malay way of life is under threat. We want to support Malays, Najib, and tell the Chinese to keep their place," said Faisal Nur, 23, a demonstrator from Malaysia's rural north.

The demonstration, and a planned rally later in the day, marked one of the largest public displays of what many Malaysian moderates warn is a trend toward racial and religious intolerance by hardline Malays.

UMNO has controlled Malaysia for 58 years, reserving economic and other advantages for Muslim Malays, saying they were needed to prevent their dominance by the sizeable ethnic Chinese and Indian minorities.

Pro-government ethnic Malay hardliners carry placards and shout slogans in Kuala Lumpur. ( AFP: Manan Vatsyayana )

But disgust over alleged UMNO repression and electoral manipulations, as well as frequent corruption scandals, have contributed to a string of election setbacks.

In response, party hardliners have increasingly resorted to racial rhetoric portraying the commercially dominant Chinese as a threat to Malay privilege.

Many Kuala Lumpur businesses run by Chinese — who make up about a quarter of Malaysia's population — were shuttered for the day out of fear of disturbances.

A view of the crowd of supporters of pro-democracy group Bersih gathered in Kuala Lumpur on August 30. ( Reuters: Edgar Su )

The vast majority of demonstrators in Wednesday's response protests were young ethnic Malay men wearing UMNO's red colours, many blowing loudly on plastic horns. Large numbers were bussed in by organisers from the countryside where ruling party support is strongest.

The rally has been criticised as racially provocative by leading figures in both UMNO and the opposition. Deadly sectarian riots in 1969 are still regularly cited as a underlining the need to maintain racial harmony.

Mr Najib, who was already under fire over huge sums of money missing from a state firm he launched, has been deeply tarnished by a revelation in July that Malaysian investigators had discovered nearly $US700 million in deposits into his personal bank accounts.

Sorry, this video has expired Influential Malaysian ex-leader Mahathir Mohamed supports opposition ( Beverley O'Connor )

His government has called them "political donations" from Middle Eastern sources but has refused to give details.

Mr Najib subsequently sacked his attorney-general and made other personnel moves that critics say have hampered criminal investigations into the funds.

Organisers of the huge two-day demonstrations last month to demand his ouster said more than 200,000 people attended.

Malay organisers said they hoped to attract 80,000 to Wednesday's rally.

AFP/Reuters