The emergency declared in Bangkok and neighboring provinces gives the army sweeping powers to detain or remove people without a court order after protesters stormed parliament on Wednesday, forcing some government officials to flee by helicopter.
By Thursday, authorities had blocked most websites associated with the red-shirted supporters of twice-elected and now fugitive former Prime Minister Thaksin Shinawatra, although its affiliated radio stations remained on air. The Protesters are demanding a new election.
Abhisit dropped his plans to travel to Vietnam for a Southeast Asian leaders summit, Issara Sunthornwat, the prime minister's deputy secretary-general, told Reuters, citing the state of emergency in Bangkok.
The decree allows authorities to suspend certain civil liberties, ban public gatherings of more than five people and stop media reporting news that "causes panic.”
"Red shirt" leader Weng Tojirakarn remained defiant.
"Today we will go on the offensive. We can't sit still and do nothing - this is our right," Weng told Reuters.
Thai stocks and the baht currency fell but traders said this reflected weakness in markets across Asia rather than fallout from protests. On Wednesday, as protesters stormed parliament, Thai stocks and the baht rose.
Investors doubt even a violent impasse will derail a rebound in Southeast Asia's second-biggest economy and one of the world's fastest rebounding emerging markets. Thai stocks are up 80 percent over the past 12 months, Asia's third-best performer.
Despite heightened tensions, foreigners have bought $1.82 billion of Thai stocks since Feb. 22.
Frequent protests, violent riots, airport blockades and three changes in government in the past 19 months have hurt consumer spending, economists say, but the prospect of prolonged strife is already priced into Thailand's relatively cheap stock prices.
When a state of emergency was imposed in April last year during "red shirt" protests that killed two people and sparked Thailand's worst street violence in 17 years, stocks kept rising, according to analysts at Kim Eng Securities.
Longer-term investors, however, appear more wary of Thailand's frequent political convulsions since a 2006 military coup that removed Thaksin. Pledges of foreign direct investment are down 15 percent this year.
Underscoring those tensions, military checkpoints have gone up outside Bangkok to stop more red-shirted protesters entering the sprawling city of 15 million people, raising the risk of confrontation on its outskirts.
Abhisit faces a difficult choice - compromise and call an election he could easily lose or launch a crackdown on tens of thousands of protesters that could stir up even more trouble.
Most analysts doubt the authorities will use force to remove the mostly rural and working class "red shirt" protesters who have been camped in Bangkok's shopping district since Saturday - a politically risky decision for Abhisit as his 16-month-old coalition government struggles to build support outside Bangkok.
The protest in the upmarket district of malls and luxury hotels, an area with plenty of symbolism in a country with one of Asia's largest disparities between rich and poor, has also drawn large numbers of families, complicating any crackdown.
But pressure is growing on the British-born, Oxford-educated Abhisit from residents in Bangkok, a stronghold of his Democrat Party, to take decisive action to end the protests, which began on March 14 when up to 150,000 massed in the city's old quarter.
"Abhisit has been accused of finding it difficult to make decisions and he seems to be struggling here somewhat. But it is a difficult position. There's human cost involved," said Danny Richards, senior Asia editor at the Economist Intelligence Unit.
Abhisit assured the public on Wednesday the emergency decree would not be used for a crackdown. In recent weeks, he has offered to dissolve parliament in December, a year early, but protesters are demanding an immediate election.
The supporters of Thaksin see the urbane, 45-year-old Abhisit as a front man for an unelected elite and military intervening in politics with impunity.
The protesters say Abhisit lacks a popular mandate after coming to power in a 2008 parliamentary vote following a court ruling that dissolved a pro-Thaksin ruling party. If allies of the "red shirts" were to prevail in an election, it would probably spark a new round of protests by Thaksin's opponents.
