Egypt's deepening political crisis following the ousting of President Hosni Mubarak has taken a dangerous new turn after soldiers armed with clubs and rifles stormed protesters occupying Cairo's Tahrir Square in a pre-dawn raid, killing at least two.

The demonstrators, angry at the slow progress of reform since the country's 18-day revolution earlier this year, had been demanding the trial of Mubarak, his son Gamal and close associates, and an immediate transition from military to civilian rule.

The rally revealed the increasing impatience and mistrust that many Egyptians feel towards the military, which took over when Mubarak was forced out of office on 11 February. Some protesters accuse the top brass of protecting the former leader.

Eyewitnesses who spoke to the Observer – accounts confirmed by graphic video footage – described hundreds of troops charging into the square firing rubber bullets at 3am on Saturday to clear it.

The assault appears to have been triggered by the decision of several dozen Egyptian soldiers on Friday to defy orders and join a protest in the square to call for the removal of Field Marshal Mohammed Hussein Tantawi, who is titular head of the country.

"The people want the fall of the field marshal," said protesters, in a variation on the chant that has become famous across the Middle East.

In the aftermath of the assault, as security forces retreated, witnesses described an army officer leading slogans against Tantawi, while anti-army graffiti appeared on barricades.

Tamer el-Said, an Egyptian film-maker who was in the square, described what happened.

"There was a huge demonstration that started at about 11 o'clock [on Friday]. There were some military officers who joined it who were dissatisfied with what the supreme military council was doing. There were between 15 and 20 of them. Obviously it was really dangerous for them so the other protesters decided that they would protect them from being arrested by the military police.

"At about 11 o'clock last night the security forces, who had surrounded the square, tried to enter it to try and catch these soldiers but the protesters would not allow them to come in. There were army and police and special forces. At 3 o'clock they attacked the square. They were firing bullets in the air: at first rubber bullets and then live rounds. They pushed all the demonstrators out of the square. Then they started to chase the protesters into the surrounding streets and the downtown area using tear gas and bullets. I have a friend who was there who said there was continuous shooting."

The huge turnout in the square has followed growing fears in some sections of Egyptian society that the army has hijacked the revolution.

According to eyewitnesses, the raid was led by a mixture of army, police and internal security forces in 20-30 military trucks. They said the firing continued in the square until about 5.30am.

Although an army spokesman insisted the army had fired only "blanks" and not live rounds to warn protesters, images posted on social media sites appeared to show both blank and live shell casings. The force of around 300 soldiers honed in on a tent camp where protesters had formed a human cordon to protect army officers who had joined them.

The troops dragged protesters away, throwing them into trucks, which video footage showed driving into the square amid the sound of gunfire. At least seven of the soldiers were reported to have been snatched.

"I saw women being slapped in the face, women being kicked," cried one female protester, who took refuge in a nearby mosque. Troops surrounded the mosque and heavy gunfire was heard for hours.

The military issued a statement afterward blaming "outlaws" for rioting and violating the country's 2am to 5am curfew, and asserted that no one was harmed or arrested.

"The armed forces stress that they will not tolerate any acts of rioting or any act that harms the interest of the country and the people," it said.

"We are staging a sit-in until the field marshal is prosecuted," said Anas Esmat, a 22-year-old university student in the square, as protesters dragged debris and barbed wire to seal off the streets leading into it.

Protesters chanted: "Tantawi is Mubarak and Mubarak is Tantawi", explicitly equating the field marshal with the president who appointed him.