Hong Kong leader Carrie Lam has announced on TV the formal withdrawal of a controversial extradition bill that has plunged the Chinese-ruled city into its worst political crisis in decades.

The bill, which would have allowed extraditions on a case-by-case basis to mainland China where courts are controlled by the Communist Party, triggered months of unrest and posed the gravest challenge to Chinese leader Xi Jinping since he came to power in 2012.

The protests in the former British colony began in June over the bill, but have since evolved into a push for greater democracy.

Hong Kong leader Carrie Lam officially withdraws the extradition bill that sparked weeks of unrest https://t.co/NJ6O2yLguh pic.twitter.com/YUElbvVGiN

— TIME (@TIME) September 4, 2019

It was not immediately clear if the announcement would help end the unrest.

Hong Kong’s benchmark Hang Seng Index jumped after the report, trading up about 3.3 per cent. The property index also jumped 6 per cent.

The withdrawal of the draft legislation was one of the protesters’ key demands.

Ms Lam has said before that the bill was “dead” but she did not withdraw it.

Thousands of demonstrators gather at Hong Kong’s Victoria Park area.

Hong Kong returned to China under a “one country, two systems” formula that allows it to keep freedoms not enjoyed on the mainland, like the freedom to protest and an independent legal system, hence the anger at the extradition bill and perceived creeping influence by Beijing.

Reuters revealed in an exclusive report on Monday that Ms Lam told business leaders last week she had caused “unforgivable havoc” by introducing the bill and that if she had a choice she would apologise and resign, according to a leaked audio recording.

At the closed-door meeting, Ms Lam told the group that she now has “very limited” room to resolve the crisis because the unrest has become a national security and sovereignty issue for China amid rising tensions with the United States.

Lam’s remarks are consistent with a Reuters report published on Friday that revealed how leaders in Beijing were effectively calling the shots on handling the crisis.

The Chinese government rejected a recent proposal by Ms Lam to defuse the conflict that included withdrawing the extradition bill altogether, three people with direct knowledge of the matter told Reuters.

Asked about the report, China’s foreign ministry said the central government “supports, respects and understands” Ms Lam’s decision to suspend the bill.

China denies it is meddling in Hong Kong’s affairs but warned again on Tuesday that it would not sit idly by if the unrest threatened Chinese security and sovereignty.

The unrest had shown no sign of easing by Tuesday night.

Riot police fired beanbag guns and used pepper spray – both anti-riot weapons – on Tuesday to clear demonstrators from outside the Mong Kok police station and in Prince Edward metro station, with one man taken out on a stretcher with an oxygen mask over his face, television footage showed.

Videos showing the man being apprehended by the police in the station have been widely shared on social media with protest groups and activists saying it is evidence of the police brutality they say is widespread and needs to be investigated.

The police, who have repeatedly denied using excessive force.

Three men, aged between 21 and 42, were taken to Kwong Wa Hospital late on Tuesday, a hospital authority spokeswoman said.

Two, including the man stretchered out of Prince Edward station, were in a stable condition and one had been discharged, she said.

-AAP