China has laid off more than a million troops since the 1980s and vowed last year to cut 300,000 more from its standing army of more than two million personnel.
Tens of thousands of army veterans have staged protests in recent years against officials who they accuse of denying them benefits. But the demonstration in Beijing on Tuesday was unusual for its central location and size.
Reports said that 10,000 ex-soldiers were involved. Pictures posted online showed large crowds wearing army uniforms.
It added that authorities had issued policies to improving living standards for retired military staff, and that further efforts would be made to "gradually solve the problem".
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Veterans' protests are one of the biggest threats to social stability in the country, Xue Gangling, dean of the China University of Politics and Law, told local media in 2013.
State media said last year that Beijing would launch a new army pension scheme after President Xi Jinping announced the reduction in troop numbers.
But the PLA Daily newspaper said at the time that the difficulties of implementing the latest reductions were "unprecedented".
Many laid-off soldiers, with little formal education, have found it difficult to re-adjust to normal society and find jobs in the civilian economy.