Rioting started as the mainly Protestant protesters passed a Catholic area on their way home from a rally in central Belfast against the flag's removal. Police scrambled to separate crowds of youths who pelted each other with bricks and bottles.
The unrest over the past five weeks has been some of the most sustained in the British-ruled province since a 1998 peace deal ended 30 years of conflict between Catholic Irish nationalists seeking union with Ireland and Protestant loyalists determined to remain part of the United Kingdom.
Exposing a deep vein of discontent with the peace deal, loyalists have held nightly protests since councillors voted last month to end a century-old tradition of flying the British union flag every day over the city hall.
Loyalist politicians have joined their nationalist rivals in condemning the violence, but they have been unable to prevent groups of young men draped in British flags from clashing with police.
The protesters have complained that the removal of the flag was a step too far in the ebbing of loyalist dominance in the province, saying too many concessions had been given to Irish nationalists in a power-sharing government.
"The protests will continue until our concerns are met," said Fergus Ferguson, from south Belfast, who described the decision to take down the flag as "illegal".
At least 1,000 loyalists, some with Union Jack tops, balaclavas and "No Surrender" banners, gathered at City Hall on Saturday.
After police blocked their way towards East Belfast the loyalist protesters took a detour towards the nationalist Short Strand area, a traditional flash point for sectarian violence, where they clashed with local youths.
After the nationalists dispersed, police turned water cannon on loyalist protesters who pushed riot police back with metal fencing and ripped up paving stones to hurl at police lines.
Reinforcements including dozens of jeeps, a helicopter and at least three water cannon trucks were sent in to try to control the crowds. Police said they fired at least six plastic bullet rounds.
Chief Constable Matt Baggott said his officers acted with "exceptional courage" during the disturbances, which led to four officers being treated in hospital. But community leaders criticised the police for failing to stop the protest passing a well-known trouble spot.
"The police have a lot to answer for. We had women and children in this parade. It's a miracle nobody was killed," said Matthew Ferguson, who attended the protest with his 12-year-old son.
Train services in Belfast were disrupted on Saturday when a small explosive device was found near a rail line in the city, a police spokesman said.
