The demonstrators were followers of Thaksin Shinawatra, the former prime minister, who has accused the privy council president, Gen Prem Tinsulanonda, 88, of masterminding a 2006 coup that deposed his government.
Mr Thaksin also alleges that Gen Prem was behind events of last December in which Abhisit Vejjajiva, the current prime minister, replaced a pro-Thaksin government.
Gen Prem has denied manipulating Thai politics while Mr Abhisit insists that his government, with a majority coalition in parliament, is democratic.
Mr Abhisit, a 44-year-old product of Eton and Oxford, says that he will not call fresh elections as the protesters demand.
"There's a group of people wanting to create chaos," Mr Abhisit told national television. "If there is rioting, we will have to do something. I can affirm there will be no violence starting from the government's side."
But the demonstrators claimed that the country had to restore unblemished democracy.
One protester, Orawan Prasonsap, said: "We want Prem to leave. He directs the soldiers who back the government, so he must leave if we want real democracy."
Gen Prem's residence, which takes up an entire block in the capital's administrative heart, has been fortified with barbed wire, garrisoned with riot police and surrounded by protesters.
"Brothers and sisters, come out," protest leaders shouted through sound systems mounted on trucks. "If you want an end to elite rule, come out! Abhisit, get out! Prem, get out!" A sign denounced the ruling class as "aristocratic dictators".
In attacking Gen Prem, Mr Thaksin has significantly altered Thailand's political debate. Criticising King Bhumibol Adulyadej, or even discussing the political role of the monarchy, is illegal in Thailand.
The powerful royal privy council has no such legal protection but public discussion of it had also been limited by the powerful taboo – until now.
Mr Thaksin's version of events involving Gen Prem has been widely accepted as true, even among Mr Thaksin's many enemies. Many government supporters argue that the steps were justified in an attempt to rid Thailand of Mr Thaksin's influence.
Mr Thaksin's critics regularly demonise him as "evil" and emphasise his alleged corruption while in office.
The protests are expected to last at least until the weekend. A group of 50 "red shirts" attacked Mr Abhisit's car on Tuesday but the prime minister was unharmed.
For Mr Abhisit the timing could not be worse – he hosts an economic summit of 15 Asian leaders on Friday.