Ugandan-born Australian Jafri Katagar was pepper sprayed and arrested by police at the busy intersection in front of Flinders Street Station on Friday.
Police claim they asked Mr Katagar to move from the intersection several times following alleged "near misses" with traffic.
He's often seen protesting at the site, while holding a sign reading 'Stop Racism Now'.
"Following a number of near misses with traffic, police advised the man he would be arrested if he did not move to a safer location," a police spokesman told SBS.
"The man still did not comply and physically resisted police when they attempted to arrest him."
Mr Katagar told Fairfax he was protesting peacefully in the spot he usually occupies between tram tracks when police asked him to move.
He claimed he was not blocking traffic.
"Most of the police they do support me. I have police who will come give me bottles of water in summer and they say they like what I'm doing, but there are others that are so, so, so, so bad," he said.
"It's mostly police who have seen me for the first time."
Mr Katagar, who previously claimed he was Australia's most hugged and most abused man, began his anti-racism protests in 2015 after a doctor questioned his ability to understand the medical system.
"I came here over 10 years ago and since my time here I realised that racism is a problem and it affects us integrating within Australian society," he said.
He was released pending summons and was expected to be charged with resisting police and obstructing traffic.
Jafri Katagar infront of Flinders Street Station campaigning (Facebook) Source: Facebook