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"We don't really want to engage in this sort of activity but we're not going to back down either," Assistant Commissioner Fontana said.
"They've [protesters] had more than ample time to make their point in terms of what their protest is about and I think it's time to give the City Square back to the citizens of Melbourne."
Greens MP Adam Bandt, the federal member for Melbourne, said calling on the riot police to intervene was a serious error by political leaders.
Hundreds of people, including school children, are now lining Swanston and Collins streets watching the drama, with some chanting "the whole world is watching".
"People will be arrested," he said, as protesters around him chanted "We are the 99 per cent".
Earlier, organisers used loudspeakers to urge the protesters to call everyone they knew to join the protest before the 9am deadline and passed around marker pens to write the mobile phone number of a legal service on their arms in preparation for arrest.
Mr Doyle said a fence would be used to try to keep others from joining the protest at the makshift camp, which he said had been taken over by "professional protesters" in recent days.
While some protesters packed up their tents in the rain and moved on, most remained steadfast.
Passers-by watched the unfolding drama from the neighbouring Starbucks coffee outlet, where they turned chairs outside the front of the store to face the action.
However at 8.30am, as yet more police moved in, Starbucks staff began packing up and said the store was closing.
A woman who demanded to be allowed entry to the protest was blocked by police.
Angry protesters began shouting and shaking fences as she was taken away by police.
"[Premier] Ted Baillieu and [Lord Mayor] Robert Doyle have made a huge blunder by sending in the police, turning a week-long non-violent protest into a site of confrontation," Mr Bandt said.
"The authorities should have negotiated with the protestors before resorting to heavy handed pressure.
"By their actions, the Premier and Lord Mayor have moved the situation from negotiation to conflict and have hardened peoples' positions."
Lachlan Gifford, an Occupy Melbourne spokesman, said the protest would spring up in other public places in Melbourne if they were forcibly removed.
"What Robert Doyle hasn't figured out yet is that, regardless of what happens here today, and even if the police and Robert Doyle are successful (in removing them), this won't be the end of it," he said.
"Eviction is a very short term thing.
"We will move next door to the church. This is going to get bigger in one way or another.
"There's this underlying dissatisfaction. People are not happy about the gap between haves and the have nots."
Several protesters were injured with one taken to hospital. While they were being cheered on by the crowd, protesters - still linking arms - retreated, with some crying and others clearly terrified.
They said dozens of police officers were not wearing name badges, in breach of regulations.
"More than 20 statements have been taken from individuals who have experienced police violence, including eye gouging, kicks to the groin,punches to the face, knees to the face and arbitrary pepper spraying
Elderly woman and men were pushed to the ground by riot police.
Video from the chaos shows a dramatic and frightful scene, with police beating, choking and dragging young people away. The main group of youths remained largely peaceful, locking arms to make it more difficult for police to break them up.
Other protesters were locked out of City Square by a large barricade set up by police, which also trapped many others inside. Police then began methodically dividing the protesters into segments, focusing on three main groups one at a time.
All the while, activists were chanting, "This is a peaceful protest!" and "Scum!" as officers dragged them away, one by one.
'Occupy Melbourne have called for a full inquiry into unlawful police behaviour amid scenes of police violence on the streets of Melbourne today. The call comes after riot police disrupted a peaceful demonstration in Melbourne's CBD.
"We call on Premier Ted Ballieu and Lord Mayor Robert Doyle to back a full and independent investigation into the use of unlawful and excessive force by Victoria Police and the Melbourne City Council," said Occupy Melbourne spokesperson Erin Buckley.
"More than 20 statements have been taken from individuals who have experienced police violence including eye gouging, kicks to the groin, punches to the face, knees to the face and arbitrary pepper spraying, including of minors. One incident involved an elderly woman with a walking stick who was pushed to the ground by riot police," she said.'