After protests over pollution fears, a local Chinese government has relented and agreed a petrochemical factory will not be expanded.
However, protesters are refusing to halt their demonstration.
The stand-off in the prosperous city of Ningbo has highlighted the deep mistrust between people and the government in China.
If the protests continue, it would upset an atmosphere of calm that Chinese leaders want for a transfer of power in the Communist Party leadership next month.
The protest in the eastern city, which comes at a sensitive time in China's political calendar, had swelled over the weekend and led to clashes between citizens and police.
The Ningbo city government said in a statement on Sunday evening that they and the project's investor had 'resolutely' agreed not to go ahead with the expansion.
The factory is a subsidiary of Sinopec, one of the biggest petrochemical companies in the world.
Outside the government offices where crowds of protesters remained, an official tried to read the statement on a loudspeaker but was drowned out by shouts demanding the mayor step down.
On the third attempt, the crowd briefly cheered but then turned back to demanding that authorities release protesters being held inside.
Liu Li, 24, a Ningbo resident, said the crowd did not believe the government's statement.
'There is very little public confidence in the government,' she said. 'Who knows if they are saying this just to make us leave and then keep on doing the project.'
The city government was likely under great pressure to defuse the protest with China's leadership wanting calm for the party congress that starts on November 8.
It's unclear whether local authorities will ultimately cancel the petrochemical project or continue it when the pressure is lower.
Hundreds of people outside the government offices refused to budge despite being urged to leave by officials.
Riot police with helmets and shields came out of the government compound and pushed the crowd back. Some people including families ran away. Police dragged six men and one woman into the compound, beating and kicking at least three of them. Police also smashed placards and took away flags.
The crowd roared for the protesters' release. Police also briefly detained ITN correspondent Angus Walker outside the offices.
The demonstration in wealthy Zhejiang province is the latest this year over fears of health risks from industrial projects, as Chinese who have seen their living standards improve become more outspoken against environmentally risky projects in their areas.
'The government hides information from the people. They are only interested in scoring political points and making money,' said one protester, Luo Luan.
'They don't care about destroying the environment or damaging people's lives.'
The protests began a few days earlier in the coastal district of Zhenhai, where the petrochemical factory is located. On Saturday they swelled and spread to the centre of Ningbo city, whose officials oversee Zhenhai.
Residents reported that Saturday's protests involved thousands of people and turned violent after authorities used tear gas and arrested participants.
Authorities said 'a few' people disrupted public order by staging sit-ins, unfurling banners, distributing fliers and obstructing roads. - AAP