Trouble began when students tried to march out of the campus but were prevented by the police at the main gate.
Police officers asked students to return to the campus as prohibitory orders under section 144 of the criminal procedure code banning the assembly of five or more people were in force in the city.
However, students tried to force their way through security barricades and pelted stones. The police retaliated with teargas.
According to eyewitnesses, a few media persons were injured in the stone pelting by students.
The students continued to pelt stones on the police from inside the campus.
Hyderabad police commissioner AK Khan denied reports that police opened fire on students. He told reporters that the police only used teargas to disperse students who were pelting stones.
Leaders of the students' Joint Action Committee (JAC) said they were determined to go ahead with the rally to Gun Park, near the state assembly. A police officer said there was no permission for the rally in view of the ban orders.
Earlier, Telangana Joint Action Committee (JAC) convenor M. Kodandaram was arrested on Wednesday when he was heading towards Osmania University.
Kodandaram was taken into custody at the RTC cross roads for violating prohibitory orders, police said.
The arrest triggered strong protest from students and other pro-Telangana groups.
As many as 31 companies of central paramilitary forces have been deployed in Hyderabad to help in maintaining law and order. A total of 70 companies have been rushed to the Telangana region to tackle the protests.
The campus was rocked by day-long clashes between students and police on Tuesday. Osmania University has again emerged as the nerve centre of the Telangana agitation.
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