"Get out, Khalifa!" they chanted, referring to Sheikh Khalifa bin Salman al-Khalifa, an uncle of King Hamad, who was held the premiership of the Sunni-ruled regime in the Gulf kingdom since 1974.
"We don't want an appointed government, we want a prime minister who serves the people," Sheikh Ali Salman, head of the main Shiite opposition grouping Al-Wefaq, told the crowd.
The gathering was the first to be officially allowed since the end of October when the authorities banned all protests to ensure "security is maintained."
Bahrain's opposition is demanding that the country's premier come from the parliamentary majority, and not be appointed from among the ranks of the ruling Al-Khalifa family.
Sheikh Salman on Friday asked protesters not to chant slogans calling for the downfall of the Sunni dynasty, a demand of more radical elements of the Shiite opposition.
He said the right to peaceful protest was guaranteed under international conventions, and demanded the reinstatement of the former Pearl Square, epicentre of month-long 2011 protests but now razed and turned into a junction.
Bahrain has experienced unrest since early last year when authorities crushed protests led by the Shiite Muslim majority demanding a constitutional monarchy and greater rights.
Manama came under strong criticism from international human rights organisations over last year's deadly crackdown on the protests.
An international panel commissioned by King Hamad to investigate the clampdown found that excessive force and torture had been used against protesters and detainees.
According to the International Federation for Human Rights, around 80 people have been killed in Bahrain since the violence began on February 14, 2011.