Thai Prime Minister Prayuth Chan-ocha backed down on Wednesday over emergency measures he imposed last week to stop three months of protests, but which spurred even bigger demonstrations against his government and the monarchy.
As the former military ruler spoke in a televised address, tens of thousands of people were marching to his office and many said his offer to lift the restrictions was not enough.
The measures banned political gatherings of five or more and publication of information deemed to threaten security.
"I will make the first move to de-escalate this situation. I am currently preparing to lift the state of severe emergency in Bangkok and will do so promptly if there are no violent incidents," Prayuth said in an address to the nation.
"We must now step back from the edge of the slippery slope that can easily slide to chaos," he added, saying talks should go to parliament - where his supporters have a majority.
Demonstrators were skeptical.
"Prayuth must resign first and that is the easiest thing to do," protest leader Tattep Ruangprapaikitseree told Reuters. He said demands for changing the constitution and reforms to the monarchy could then be channeled through parliament.
The protests have become the biggest challenge to Thailand's establishment in years and have drawn the most open opposition to the monarchy in decades despite lese majeste laws setting jail terms of up to 15 years for insulting royalty.
About 2 km (1.2 miles) from Government House, a wall of riot police initially blocked marching protesters, but eventually allowed them through.
Most demonstrations have been peaceful so far, but police used water cannon against protesters last Friday, further fuelling the anger of government critics.
In his speech, Prayuth said "terrible crimes had been committed against the police using metal rods and huge cutting implements" on that day, although witnesses reported no such incidents at the time. But he also said Thailand would not "get to a better society through the use of water cannon".
Protesters say Prayuth engineered an election last year to keep hold of power he seized in a 2014 coup.
He says the election was fair. Protesters accuse the monarchy of enabling years of military domination.
The palace has a policy of making no comment to media.
Prayuth said protesters should wait for next week's emergency session of parliament, whose entire upper house was appointed by his former junta.
"The protesters have made their voices and views heard," Prayuth said. "It is now time for them to let their views be reconciled with the views of other segments of Thai society."
Scores of Thai royalists and anti-government protesters earlier confronted each other at Ramkhamhaeng University.
The yellow-shirted royalists advanced on student protesters and the two sides shouted abuse at each other. Some threw water bottles and other objects before the students pulled back and police stepped in to separate the sides.
On marcher, 54-year-old Too, also dismissed Prayuth's speech: "It's not enough. He must resign."