More protesters were expected to join en route with the march set to end in a rally at the government`s offices.
"The most important thing is to express disapproval to the Hong Kong and Chinese communist government for suppressing the freedoms of Chinese people and real elections for Hong Kong people," protester Wong Man-ying, 61, said.
Turnout was expected to be lower than in previous years after almost 12 months of rallies in the politically divided city, with campaigners admitting fatigue had set in.
Last year`s march saw huge numbers gather as discontent surged over restrictions by Beijing on how Hong Kong chooses its next leader, and organisers said a record 510,000 had attended.
The government`s plan to allow the public to vote for the city`s chief executive for the first time in 2017 was derided as "fake democracy" by the opposition, as it stuck to Beijing`s ruling that candidates must be vetted by a loyalist committee.
That ruling sparked mass street rallies for more than two months at the end of last year and the bill was finally voted down by pro-democracy lawmakers last month.
"Everyone anticipates a lower turnout than last year... because the momentum has slowed down after the veto over political reform," said Johnson Yeung of the Civil Human Rights Front, the march organisers.
But Yeung insisted numbers were not important and that this year`s march was a chance to reshape the democracy movement`s message, which has splintered since the end of the mass street rallies in December.
"Right now people are asking `what next?` after the veto. We hope the march can set the political agenda and give citizens a chance to discuss how to bring the democratic movement forward."
This year is the 18th anniversary of the handover of Hong Kong to China by Britain in 1997 and the march is traditionally an outpouring of protest directed at both China`s communist government and the local leadership.
It comes at a time when Hong Kong is deeply polarised with fragmentation in both pro-democracy and pro-Beijing camps.
Pro-Beijing groups also separately held anniversary events including lion dance performances and a street parade.
In a speech Wednesday at a ceremony for the handover anniversary, city leader Leung Chun-ying criticised lawmakers who had rejected the government`s reform package.
Leung used instability in Europe to argue that other issues should now take precedence over democratic reforms.
"As the experience of some European democracies shows, democratic systems and procedures are no panacea for economic and livelihood issues," he said.
A small group of protesters near the ceremony carried a cardboard coffin marked "Grave of Hong Kong - Date of Death: 1997" and burned a portrait of Leung.
One was arrested for burning a Hong Kong flag, police said, but later released on bail.
The democracy camp has struggled to stay united since last year`s rallies failed to win concessions on the reform package.
Some support a newly emerging "localist" stance that semi-autonomous Hong Kong should seek increasing independence from Beijing, rather than campaigning for democracy in China.
The pro-establishment side was also left in disarray after a chaotic vote on the election package which saw the majority of the lawmakers supposed to back the bill staging a mistimed walkout.
But although some young campaigners have distanced themselves from mainstream pro-democracy gatherings, others said Wednesday that it was still important to march.
"Marching does not mean we can achieve all the things we want, but we have to express these ideas," Andy Fung, 17, said.
"It`s like the man who stood in front of the tank during the June 4 Tiananmen Square crackdown. It`s not because he was not afraid to die. He wanted to show that our thoughts cannot be controlled."
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