Egyptians frustrated by army rule battled police in Cairo streets again on Tuesday as the military struggled to cope with a challenge to its authority that has jolted plans for the country's first free election in decades.

Thousands of people defied tear gas wafting across Cairo's Tahrir Square, the hub of protests swelling since Friday into the biggest crisis yet for the generals who took over from Hosni Mubarak and who seem reluctant to relinquish their power.

Some protesters hanged an effigy of Field Marshal Mohamed Hussein Tantawi, the 76-year-old army chief, from a lamp post.

Ahmed Shouman, an army major who gained fame as the first officer to join protests against Mubarak, returned to Tahrir to join the demonstrations. Ecstatic protesters carried him on their shoulders. Shouman was acquitted in a military court after his defection in February, but was suspended from service.

About 5,000 people also marched in the port city of Alexandria to join 2,000 already demonstrating against army rule outside a military command headquarters, witnesses said.

The army council headed by Tantawi, who served as Mubarak's defence minister for two decades, held talks with politicians on the crisis, in which at least 36 people have been killed and more than 1,250 wounded since Saturday, medical officials say.

State television said Tantawi would address the nation later in the day. Prime Minister Essam Sharaf's cabinet has resigned, but the army council has yet to say whether it will accept this.

The unrest has knocked Egypt's markets. The benchmark share index has fallen 11 percent since Thursday, hitting its lowest level since March 2009. The Egyptian pound fell to its weakest against the dollar since January 2005.

In a stinging verdict on nine months of army control, rights group Amnesty International accused the military council of brutality sometimes exceeding that of Mubarak, who was ousted in February.

The United States, which gives Egypt's military $1.3 billion (829.98 million pounds) a year in aid, has called for restraint on all sides and urged Egypt to proceed with elections due to start on Monday despite the violence, a stance broadly echoed by many European leaders.

Protesters waving flags and singing skirmished with security forces in and around Tahrir Square, where banners read Save Egypt from thieves and the military. As pungent clouds of tear gas set off stampedes, activists chanted Stay, stay, stay.

Youth groups had called for a mass turnout to press demands for the military to give way to civilian rule now, rather than according to its own ponderous timetable, which could keep it in power until late 2012 or early 2013.

TANTAWI UNDER FIRE

Come to Tahrir, tomorrow we will overthrow the field marshal! youthful protesters chanted, referring to Tantawi.

The army council has vowed to proceed with the parliamentary election, but the bloody chaos in the heart of Cairo and elsewhere has thrown doubt over the schedule.

The powerful Muslim Brotherhood, which anticipates a strong showing in the election, was among five parties at the crisis talks with the military council. Three presidential candidates were also there, but a fourth, Mohamed ElBaradei, stayed away.

Elections must be held on time and we will push for a specific timetable for the transitional period, Saad el-Katatni, secretary-general of the Brotherhood's newly-formed Freedom and Justice Party, told Reuters.

Presidential candidate Amr Moussa echoed the call for the election to go ahead, but said a presidential vote should take place no more than six months after the lengthy process of polling for both houses of parliament is completed in March.

Under the army's plans, parliament would name a constituent assembly to draw up a constitution within six months that would then go to a referendum. Only after that would a new president be elected to take back the powers of the military council.

The liberal Wafd party, represented at the talks, called in a statement for a two-week delay in the start of elections.

Youthful protest groups were staying away from the meeting between politicians and generals.

The revolutionary youth are not holding dialogue with the military council. The dialogue is going on in Tahrir square, not behind closed doors with the generals, said Khaled Mardeya, a spokesman for the January 25 Revolution Coalition.

DEMAND FOR CIVILIAN RULE

Anger against the military council exploded this month after a cabinet proposal to set out constitutional principles that would permanently shield the army from civilian oversight.

Some opponents of military rule have demanded that the generals make way immediately for a national salvation government of civilians to manage Egypt's transition to democracy.

Beyond Cairo, violence has accompanied protests in the cities of Alexandria, Suez and Ismailiya, but nationwide demonstrations against army rule have yet to match the vast numbers that turned out to topple Mubarak.

In Tahrir, activists tried to control access to the square. Volunteers on motorbikes ferried casualties from clashes with security forces firing tear gas near the Interior Ministry.

The mood among protesters was determined. The real revolution begins from today, said Taymour Abu Ezz, 58. Nobody will leave until the military council leaves power.

Ahmad Gad, 20, a student, said: The people feel that Hosni Mubarak is still ruling. In Tunisia they already had elections.

Holding a sign that read Mubarak, leave, a 50-year-old English teacher named Mohammad Abdullah said: He's still in power. He just moved his HQ from the palace to the hospital.

Mubarak, 83, on trial since July for ordering the killing of protesters, has spent months in a military hospital in Cairo.

Political uncertainty has gripped Egypt since Mubarak's fall, while sectarian clashes, labour unrest, gas pipeline sabotage and a gaping absence of tourists have paralysed the economy and prompted a widespread yearning for stability.

Several banks in central Cairo were closed on Tuesday as a precaution against looting, the state news agency said.

Amnesty International said the military had made only empty promises to improve human rights. Military courts had tried thousands of civilians and emergency law had been extended.

Torture had continued in army custody, and there were consistent reports of security forces employing armed thugs to attack protesters, it added in a report.

(Additional reporting by Peter Apps in London, Marwa Awad, Omar Fahmy, Dina Zayed, Shaimaa Fayed, Tom Perry and Edmund Blair in Cairo, Abdel Rahman Youssef in Alexandria and Yusri Mohamed in Ismailia; Writing by Alistair Lyon; editing by David Stamp)