Far-right activists from the True Blue Crew, which says it is opposed to refugees and the "Islamisation" of Australia, faced off with members of a left-wing coalition promoting tolerance in the city.
Australia has seen a rise in far-right activist groups and political parties opposed to Islam and Asian immigration following a number of ‘lone wolf’ attacks by home-grown radicals, Reuters reported.
Victoria Police said one person was arrested for possession of a weapon and one detained for breach of the peace, and a knife and a knuckle duster were confiscated.
“Police were forced to deploy capsicum spray when a small number of protestors attempted to breach a police line, with one person given aftercare as a result of the capsicum spray,” a spokeswoman said.
TV footage showed nationalist protesters holding Australian flags on poles or draped around their shoulders, while opposition protesters held placards with anti-racism messages.
The rally attracted hundreds of protesters and a heavy police presence kept the opposing groups separated, local media reported.
Australia, a staunch ally of the US, has been on high alert for home-grown attacks since 2014 and authorities say they have thwarted a number of plots.
Far-right groups and political parties like Pauline Hanson’s One Nation have seized on the mood to push anti-immigration agendas.
Concern about immigration has also seeped into the mainstream political discourse, with the governing Liberal-National coalition vowing to tighten rules around citizenship and require applicants to demonstrate how they have embraced “Australian values”.
Phillip Galea, a fixture at rallies organized by the True Blue Crew, was charged with planning a terror attack in August last year.
It was the first time federal terrorism laws had been used to target such right-wing groups.