A military police commander said the dissident troops had retreated into their barracks and were trying to negotiate a way out.

Political analysts say there has been growing unease within some elements of the armed forces at President Andry Rajoelina's failure to end an economically crippling political crisis on the Indian Ocean island.

"Everything is calm. They have retreated into their camp and are negotiating a way out," regional military police commander Col. Richard Ravalomanana told Reuters.

Col. Ravalomanana said he thought 21 renegade troops from the National Gendarmes Intervention Force (FIGN) were involved in the clash. He said four people had been wounded, including one civilian and two rebel military policemen.

The Madagascar Red Cross said it treated three civilians with bullet wounds after several hundred anti-government protesters rallied in support of the rebel troops.

A Reuters witness also saw former parliamentarians aligned with exiled former president Marc Ravalomanana at the protest site.

Political instability has convulsed the world's fourth largest island, eyed increasingly by foreign investors for its oil and mineral resources, since Rajoelina grabbed power with military backing in March last year.

Earlier this month, Madagascar's army chief rowed back on an ultimatum given to Rajoelina to find a solution to the leadership crisis after the president pledged to form a "neutral" government.

A military police officer leading the protest, Col. Raymond Andrianjafy, said "injustices and arrests" had prevailed under Rajoelina's leadership.

"The truth will never die and we are prepared to go all the way and take hold of our responsibilities," Andrianjafy told reporters late on Wednesday.

The FIGN's commander, General Viennot Zafera, described the dissidents' action as an attempted coup.

In the eyes of many people on the island, Rajoelina, Africa's youngest leader, has failed to deliver on his promise to improve living standards and strengthen civil liberties.

Former president Ravalomanana opened Madagascar's doors to major foreign companies, and overseas investment surged to around $1.47 billion to 2008 from $86 million in 2005. Inflows have collapsed, but by how much is not clear.

Madagascar is set to hold a referendum on constitutional reform in August and a presidential ballot in November. Rajoelina has said he will not be a candidate.