Police are keeping a close eye on the potential for violent clashes at competing rallies on Australia Day, with Melbourne set to grind to a halt as thousands of protesters flood into the city on Friday.

A huge crowd is expected to gather on the steps of Parliament House and march to Federation Square for the annual 'invasion day' rally, for which protesters have been asked to wear black to symbolise the mourning felt by the Indigenous community.

It will be 230 years since the establishment of a British colony in Australia and the demonstration will remember the 80th anniversary of the first "day of mourning" in 1938, when Aboriginal people walked in silence to protest the "callous treatment of our people by the white man".

Protesters march through the streets of the Melbourne CBD at an Indigenous rally in 2015. Credit:Scott Barbour

Far-right groups the True Blue Crew and United Patriots Front are also planning their own "beach party" in St Kilda to celebrate Australia Day and could also make an appearance at the CBD rally, as well as a citizenship ceremony in Moreland City Council.