Witnesses say as many as 300 Nauruans attended the protest, including several opposition MPs who have been suspended from parliament for more than a year for criticising the government.
The protest follows allegations that place the president, Baron Waqa, and justice minister, David Adeang, at the centre of bribery claims, after the ABC published extracts from emails that suggest that both men were allegedly bribed by Australian mining company Getax.
One opposition MP, Mathew Batsiua, was arrested as police clashed with protesters. Batsiua’s wife Tricia confirmed the arrest.
“He’s in the holding cell. I’m here at the parliament building trying to find out why,” she said.
“There was a bit of a scuffle, the protesters are demanding his release.”
There are unconfirmed reports that Batsiua was beaten by police following his arrest, Radio New Zealand has reported.
Sources on Nauru have confirmed that police “set up” Batsiua’s arrest.
Eyewitnesses said Batsiua was informed by the police that he would be able to meet with the president to discuss the crisis.
They claim that when he stepped through the police line, he was arrested from behind as he set foot in parliament, where he is banned from entering as a result of his suspension.
A video posted on social media shows a scuffle breaking out as hundreds of protesters chanted outside the island’s parliament.
Another video shows smoke rising in front of the government building.
The protest is likely to serve as a test of new laws that could see political protesters jailed for up to 10 years. The laws have been criticised by the United Nations as a serious attack on freedom of expression.
Last week’s the ABC revealed bribes were allegedly paid by an Australian phosphate buyer to Waqa and Adeang when they were the opposition.
The Nauruan government has denied the allegations.
The government said in a statement it was “appalled and disgusted by today’s riot outside Parliament House which saw an opposition MP arrested”.
“Mathew Batsiua was one of three suspended opposition MPs leading the riot and was arrested on a charge of disrupting the legislature,” the statement read.
President Waqa said the “illegal protest” was “ugly and disappointing”.
Critics say the government has orchestrated a major crackdown on free speech in Nauru, including a new law against using offensive speech that could generate “political hatred”.
The Nauruan media is not allowed to interview opposition MPs, and Facebook has also been shut down.
Dozens of other foreign officials working in Nauru have since been sacked by the government, deported or resigned.
A number of them have told the ABC that Nauru is now effectively a dictatorship.
The protesters at parliament were calling on the president and the justice minister to resign.
One organiser of the demonstration said 1000 people had joined the protest, and the government had threatened anyone who attended would lose their jobs.
They alleged police in riot gear attacked the Nauruans in the crowd.
Nauruan parliament was scheduled to sit, but the ABC understands it was suspended due to the protest.
Last week the ABC reported that it had obtained evidence that the president of Nauru and his justice minister were allegedly bribed by an Australian phosphate dealer.
Other government MPs were also implicated in the scandal.
Leaked emails of transactions are being examined by the Australian Federal Police as part of a major foreign bribery investigation, the ABC reported
The emails revealed a plot to overthrow the Nauru government in 2010.
A Nauru government spokesman denied Adeang or Waqa had received bribes.
The allegations were “a slur on the character of our president and offensive to our nation”, the spokesman said.