A hard core of opposition activists had spent the night in the iconic protest hub -- epicentre of the popular uprising that toppled veteran strongman Hosni Mubarak last year -- erecting some 30 tents, an AFP correspondent reported.
But when more demonstrators attempted to join them in the morning, police responded with volleys of tear gas forcing them to retreat into surrounding streets.
Opposition-led protests were held in most of Egypt's major cities on Friday sparking violent clashes in the canal city of Suez and the Mediterranean city of Alexandria, where offices of the Islamist Freedom and Justice Party, which backed Morsi for the presidency, were torched.
The mainly secular liberal activists voiced determination to keep up the momentum of their protests against Morsi's decree on Thursday which placed his decisions beyond judicial scrutiny, vastly adding to his power.
"Egypt is at the start of a new revolution because it was never our intention to replace one dictator with another," activist Mohammed al-Gamal told AFP, showing his broken spectacles and hand in a plaster cast than he said were the result of the police action.
Washington, which only Wednesday had voiced fulsome praise for Morsi's role in brokering a truce between Isreal and Gaza's Hamas rulers to end eight days of deadly violence, led international criticism of the Islamist president's move.
Members of the Muslim Brotherhood and other groups were also out in strength on Friday in a show of support for the president in his move to prevent the courts dissolving the Islamist-dominated constituent assembly and upper house of parliament as they have already the lower house.
Clashes broke out between the rival supporters in several cities, AFP correspondents and state television reported.
In an address to supporters outside the presidential palace, Morsi insisted that Egypt remained on the path to "freedom and democracy", despite his move to undercut the judicary.
"Political stability, social stability and economic stability are what I want and that is what I am working for," he said.
The president already held both and executive and legislative powers and Thursday's decree puts him beyond judicial oversight until a new constitution has been ratified in a referendum.
It also means that the Islamist-dominated panel drawing up the new charter can no longer be touched and gives it a two-month extension -- until February next year -- to complete its work.
Washington and European governments voiced concern about the concentration of power in Morsi's hands and its implications for the democratic gains of last year's uprising which toppled Mubarak.
"The decisions and declarations announced on November 22 raise concerns for many Egyptians and for the international community," said US State Department spokeswoman Victoria Nuland.
"One of the aspirations of the revolution was to ensure that power would not be overly concentrated in the hands of any one person or institution."
The European Union urged the Egyptian president to respect the democratic process.
"It is of utmost importance that democratic process be completed in accordance with the commitments undertaken by the Egyptian leadership," a spokesman for EU foreign policy chief Catherine Ashton said.
Morsi must ensure the separation of powers, the independence of justice, the protection of fundamental freedoms and the holding of democratic parliamentary elections "as soon as possible", said spokesman Michael Mann.
Hesham Sallam, a political analyst at Georgetown University, said Morsi's decree gave him as much power as Mubarak.
"The decrees effectively render the presidential decisions final and not subject to the review of judicial authorities, which marks a return to Mubarak-style presidency, without even the legal cosmetics that the previous regime used to employ to justify its authoritarian ways," he told AFP.
But a spokesman for the Freedom and Justice Party, headed by Morsi before his election, said the president's decree was necessary to cut short the turbulent transition.
"We need stability," said Murad Ali. "That's not going to happen if we go back again to allowing the judges, who have personal reasons, to dissolve the constituent assembly in order to prolong the transitional phase."