Police pulled back from Taksim square, the epicentre of the demonstrations that have left dozens injured and earned Turkey a rare rebuke from its Western allies.
Erdogan admitted that "there have been some mistakes, extremism in police response" and that legal action would be taken against officers who added disproportionately.
But he also remained defiant, vowing to push forward with controversial plans to redevelop the iconic Taksim square -- the catalyst that had sparked the protests.
What began as an outcry against a local development project has snowballed into widespread anger against what critics say is the government's increasingly conservative and authoritarian agenda.
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The unrest has spread to other cities, with police today blocking a group of demonstrators from marching to parliament and the prime minister's office in Ankara.
"I call on the protesters to stop their demonstrations immediately," Erdogan said in a speech, as clashes raged for a second day at Taksim square, a popular tourist destination and traditional rallying site in Istanbul.
"We have become one fist," 33-year-old Ataman Bet said as he swept up shattered glass outside his small coffee shop near Taksim. He noted that the protestors stemmed from across the political spectrum, and even included Erdogan's supporters.
The demonstrators had been preventing workers from razing the last patch of trees in the commercial area to make way for the restoration of Ottoman era military barracks. Residents fear that the barracks would be turned into a shopping mall.
More than 60 people have been detained over the unrest, according to regional authorities.