Police say the confrontation began after midnight Wednesday when Buddhist hard-liners entered a Muslim neighborhood claiming that ethnic Rohingya Muslims were hiding "illegally" in the area.
It was the latest manifestation of rising anti-Muslim sentiment in the predominantly Buddhist nation, where ultra- nationalist Buddhist monks and their supporters forced the closure of two Muslim schools in Yangon last month.
Rohingya in Myanmar are largely denied citizenship and basic rights. The majority of them live in western Myanmar and cannot travel without special permission.