India's leading anti-corruption campaigner Anna Hazare fasted in Tihar jail on Wednesday after refusing a police release order, a stand-off that has sparked nationwide demonstrations and widespread derision at Prime Minister Manmohan Singh's government.

The government arrested 74-year-old Hazare and more than a thousand of his followers on Tuesday, just hours before he was due to begin a fast to the death to demand anti-corruption legislation. It then made a U-turn and ordered his release after thousands of Indians took to the streets.

But Hazare refused to leave the Tihar jail, insisting he wanted the right to return to the city park where he had originally planned to fast. The Congress party was due to hold an emergency meeting early on Wednesday to discuss the crisis.

The crackdown on Hazare met with outrage from the opposition, sparking parliament's adjournment and protests, from candle-light vigils to the burning of effigies of government figures, in cities across India.

The arrest and sudden about-turn appeared to confirm a widespread feeling the 78-year-old Singh was out of touch and that his government was clumsy and too riddled with corruption scandals to govern Asia's third-largest economy effectively.

"Corrupt, repressive and stupid," was the verdict of the Hindu newspaper. "Anna has the government fumbling," was the headline of the Mail Today.

Hundreds of protesters gathered outside the New Delhi prison overnight where Hazare was jailed and more protests were planned across India on Wednesday. There were calls for civil servants to take leave and rickshaw drivers to strike.

Opposition parties plan to protest against the arrest in Wednesday's parliament session.

Dressed in his trademark white shirt, white cap and spectacles in the style of independence leader Mahatma Gandhi, Hazare has won support from many Indians sick of endemic corruption as their economy booms.

The arrest played into Hazare's hands. Many parties were sceptical about the fast and there has been criticism the activist was holding Indian democracy hostage. But any doubts about the protest were overshadowed by the arrest.

A weak political opposition means that the government should still survive the crisis, but it could further dim the prospect for economic reforms that have already been held back by policy paralysis and a raft of corruption scandals.

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The arrests shocked many in a country with strong memories of Gandhi's independence battles against colonial rule with fasts and non-violent protests.

Opposition figures likened the crackdown to the 1975 "Emergency" when then-prime minister Indira Gandhi arrested thousands of opposition members to stay in power.

Home Minister Palaniappan Chidambaram justified the arrest, saying governments had a right to impose conditions on protests.

The question for many is whether Hazare's movement will grow in the fast-urbanising nation of 1.2 billion people whose increasingly assertive middle class is fed up with constant bribes, poor services and unaccountable leaders.

The scandals, including the 2G bribery scam that may have cost the government $39 billion, have not only stymied Singh's reform agenda, they have dented investor confidence and distracted parliament just as the $1.6 trillion economy is being hit by inflation and higher interest rates.

Hazare rose to fame for lifting his village in Maharashtra out of grinding poverty. His social activism has forced out senior government officials and helped create a right-to-information act for citizens.

Hazare became the unlikely thorn in the side of the Congress-led coalition when he first went on a hunger strike in April and won concessions from the government. He called off that fast after the government promised to introduce the Lokpal bill creating a special ombudsman to bring crooked politicians, bureaucrats and judges to book.

The legislation was presented in early August, but activists slammed the draft version as toothless because the prime minister and judges were exempt from probes.