The march began peacefully but it wasn't long before nasty skirmishes broke out when protesters began lobbing hard hats at officers who retaliated by clobbering the demonstrators.
The traders have always been a source of anger among those in Hong Kong who say they have fuelled inflation, driven up property prices, dodged taxes and diluted Sheung Shui's identity.
Sheung Shui resident Ryan Lai, 50, said: 'Our lovely town has become chaos.
Critics say activities by parallel importers have negatively affected the Sheung Shui district's retail mix, pushed up rents and worsened hygiene conditions because of the huge influx of tourists and traders from the mainland.
"We don't want to stop travel and buying, but please, just make it orderly and legal", he added.
The Hong Kong police said a series of clashes had occurred during the protest, calling on the demonstrators to end violence and disperse.
"Restore Sheung Shui to its former glory", "Restore our serenity" and "Kick out parallel traders", shouted many at the march earlier in the day.
On July 1, the 22nd anniversary of Hong Kong's handover from Britain back to China, a peaceful march drew hundreds of thousands of people.
Hong Kong protesters have assembled for a mass demonstration and march on Saturday in Sheung Shui, a popular border town near to mainland China that has been a site of confrontation between mainland shoppers and local political groups.
Most of the protests have taken place in and around Hong Kong's central business district, but recently demonstrators turned their sights to parts of the territory that have seen less political activity.
HONG KONG-Hong Kong protesters clashed with police on July 13 in a town near the boundary with mainland China where thousands rallied against the presence of Chinese traders, seizing on another grievance following major unrest over the extradition bill.
The bill was suspended on June 18 but not formally withdrawn, while Hong Kong leader Carrie Lam said it was "dead" and there was "no such plan" to reanimate it. Many street-level shops were shuttered ahead of the march. "I hope that through today's action, people in Hong Kong will not forget that there are actually many other social issues waiting to be solved".
But many say China has progressively tightened its grip, putting Hong Kong's freedoms under threat through a range of measures such as the extradition bill.
Last month, Lam suspended the bill indefinitely.
According to the Hong Kong Free Press, more protests are planned due to continued public skepticism over the government's intent.
A week ago, some 2,000 people took to the streets in Tuen Mun, also in the New Territories, to protest against the noise and environmental nuisance created by mainland Chinese women singing and dancing in a district park.