Protesters clashed with police as they tried to storm the state television building in the centre of Hungary's capital, Budapest.
They hurled bottles and cobblestones at riot police and torched the building along with several vehicles parked nearby.
The demonstrators are angry about a leaked tape which was broadcast by Hungarian public radio at the weekend.
The broadcast aired a closed-door discussion between Mr Gyurcsany and his party's deputies last May in which he said candidly that the government has accomplished nothing but "rubbish" and "lied all along for the past 18 months - two years."
The 44-year-old prime minister admitted Sunday that the tape-recording - from an undisclosed source - was authentic.
But later today Mr Gyurcsany ruled out resigning from office and vowed to continue his program of reforms.
Memories of 1956
The protest marks the first such violence since the fall of communism in the late 1980s.
In memory of Hungary's failed uprising against Soviet rule in 1956, they chanted "56" and used flagstones to attack the television building.
The violence follows a protest by up to 10,000 people who gathered outside parliament to demand the Prime Minister’s resignation.
While the Socialist Party rallied behind Mr Gyurcsany, Hungary's president said he had created a "moral crisis."
Opposition parties demanded he step down.
The opposition claims Mr Gyurcsany campaigned on promises of tax cuts, only to impose $US4.6 billion ($A6.13 billion) in tax rises and cuts to benefits.
In the leaked tape, the Prime Minister is seen appealing to his party after the election to change its ways.
"We lied in the morning and in the evening" and the government achieved nothing in office apart from winning the election, he said.
The clashes erupted just a day after Mr Gyurcsany received unanimous endorsement from Socialist MPs as Prime Minister.
He had also won support to cut Hungary's budget deficit, the biggest in the European Union.
'Restore order': Gyurcsany
Later, Mr Gyurcsany vowed to use whatever means are necessary to restore order following the protests that left 150 people, most of them policemen, injured.
The socialist leader said the right to freedom of expression did not extend to resorting to violence and called on "all political forces" to refrain from supporting the demonstrations.
"Taking to the streets: it is not a solution, but a source of conflicts and of crisis," Mr Gyurcsany said. "Our duty is to ease this conflict and prevent a crisis."
EU commissioner deplores violence
The EU commissioner and former Hungarian foreign minister Laszlo Kovacs later deplored the political unrest and street violence, calling for the implementation of a challenging economic programme to ease its woes.
"Certainly burning cars and burning public buildings is not a solution," the EU's tax and customs commissioner told reporters in Brussels.
"It is very much in the interest of the Hungarian people, but also very much in the interest of the European community, that the situation should be stabilised as soon as possible."