Several thousand protesters converged on the main square, vowing to retake the city centre after police moved in at the weekend to restore order.
Striking teachers and leftist activists are demanding that Governor Ulises Ruiz be sacked for abuse of power.
Mexico's lawmakers have urged Mr Ruiz to quit, but he says he will stay on.
Senators unanimously approved a resolution calling on him to "consider resigning from office to help restore law and order" in Oaxaca.
The Senate's motion came hours after a similar measure was approved by the lower house of the congress.
Calls for Mr Ruiz's resignation have been at the heart of a drawn-out protest by Mexican teachers and left-wing activists, who accuse him of authoritarianism and corruption.
Over the weekend, some 4,000 riot police entered Oaxaca, removing demonstrators from the city centre. One man was reported to have died in the operation.
Mexican President Vicente Fox ordered the action on Saturday, a day after unidentified gunmen killed three people, including a US journalist.
BBC WORLD
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