Police officers in riot gear blocked the protesters when they moved the chariot, dousing them with water cannons. Police fired tear gar to disperse the protesters, who in return threw stones at the police.
The clash continued for hours and spread to the small cobble stone alleys in the city, which is south of the capital, Kathmandu.
Nepalese authorities have banned outdoor festivals and religious gatherings since March to stop the spread of coronavirus. Kathmandu and surrounding districts have been on a lockdown since last month that prohibits people from leaving their homes.
A nationwide lockdown was first imposed in March to stop the spread of the disease, but that was finally lifted in July.
However, the number of virus cases kept climbing, prompting the government to impose prohibition orders in districts with the most cases.
Travel is still restricted and the airport is allowing only a limited number of international flights since this week. Borders are officially closed and tourists are not allowed to enter Nepal.
Nepal has had 42,877 confirmed cases of the coronavirus since the pandemic began and 257 deaths.
The festival is a month-long event where the chariot with Rato Machindranath — a deity whose statue is made from clay and covered in red paint with eyes wide open — is pulled around the city for a month in the belief that it will to please gods so they can provide for a generous rainfall, a good harvest and prosperity.
It is believed this festival has been held for more than 1,350 years.
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