Two people have been arrested after neo-Nazis clashed with police and counter-protesters at an anti-immigration rally on the streets of Melbourne.

Wild scenes erupted as police wrangled crowds outside Parliament House, where a group of masked men performed the Nazi salute, sparking a bitter war of words.

Police arrested a 30-year-old Doreen man for theft of a police body camera and assaulting police, while a 20-year-old Werribee man was arrested for discharging a missile and assaulting police.

Federal Labor MP Chris Bowen condemned the protests.

“It’s unspeakably un-Australian,” he said. “It’s unacceptable. It is not on.”

The neo-Nazis, dressed in all black, were heavily outnumbered by anti-racism activists and gave up ground as police used pepper spray to keep the factions apart.

But then the neo-Nazis broke and ran, according to eyewitnesses, with the counter-protesters giving chase through the CBD’s streets.

Members of a Campaign Against Racism and Fascism group chanted “refugees welcome, Nazis are not” as they faced off with a group holding a banner for the far-right National Socialist Network.

Victorian Opposition Leader John Pesutto slammed the protest and thanked the police for their work.

“The Victorian Liberals and Nationals condemn neo-Nazi thugs and their toxic bigotry and hate,” Mr Pesutto wrote in a joint statement with deputy Liberal leader David Southwick.

Pesutto backs Labor measures

“Australia has a proud history of an orderly immigration program where people from all backgrounds come together in shared liberal-democratic values.”

The Liberal Party renewed its offer to work with the Andrews Labor government on plans to ban the Nazi salute, announced by the government following its use at an anti-transgender rally in March.

Greens deputy leader Mehreen Faruqi condemned the Nazi salute display.

“Disgraceful to see Neo-Nazis on the streets of Melbourne again, this time rallying against immigration,” she tweeted.

“Fascism & racism have no place in our multicultural society & must be destroyed.”

Most states and territories have enacted bans or are in the process of outlawing the display of Nazi symbols, with the salute covered in some jurisdictions.

Stop-and-search policy

Victoria has banned Nazi symbols in public and is moving to include the Nazi salute.

A Victoria Police spokesperson said there was a heavy police presence across the city.

“Officers are equipped and well prepared to deploy resources to ensure the safety of the community and to keep the peace,” they said.

“Hate and prejudice hold no place in our community and we will not tolerate any offensive and abhorrent anti-social behaviour.”

Earlier on Saturday, Victoria Police declared the CBD a “designated area” from 7am to 7pm in response to the planned “stop immigration rally”.

The designation means officers are empowered to search a person or their vehicle for weapons.

– with AAP