Protesters threw bottles at police in riot gear and a fire was lit outside the palace.
"They started shouting move back, move back, but we had nowhere to go," said protester Ceylan Hassan.
"The police started pushing us, screaming 'move back, move back'.
"There was a fire on the right hand side of the (Victoria) monument and people started throwing things," she added.
The demonstration was part of a pre-arranged "million mask" protest by "hacktivist" group Anonymous with similar events taking place in Japan, Australia, and New Zealand.
The mask of his face, as popularised in the comic book series V for Vendetta, has come to symbolise the international protest movement against austerity and capitalist excesses.