Marchers descended on a central district housing several ministries to make known the views of a protesters' "New Year welcome committee" for the administration of Chancellor Sebastian Kurz, who became the world's youngest leader at 31 last month.
While police said 20,000 people marched, organisers claimed as many as 60,000 took to the streets to protest against the inclusion in the government of the anti-immigrant Freedom Party (FPOe), which holds six cabinet portfolios, including that of the vice-chancellor, party leader Heinz-Christian Strache.
"What I fear the most is that this type of government becomes the norm," said one demonstrator, 55-year-old Christa, while Tobias Grettica, a 47-year-old German, said he was worried "to see nationalism making inroads everywhere, not just in Austria".
Anna, 23, said she was protesting against "a government that wants to divide society, demonise minorities, erode women's rights devalue solidarity".
People of all ages, including families, answered the call of leftist and anti-racist groups, marching in a long procession through the centre of the Austrian capital.
The march came to an end at the former imperial Hofburg palace, where crowds gathered, illuminating the darkness with the light of thousands of smartphones.
'Do not let Nazis govern'
On a visit to France on Friday Kurz, whose country has the only government in Western Europe to feature the far right, appealed for understanding and insisted his team was "pro-European".
But Saturday's marchers brandished slogans drawing parallels with the 1938 annexation of Austria by Nazi Germany, one reading "those who tolerate Kurz and Strache would have applauded 1938".
Other placards read "Resistance" and "Do not let the Nazis govern".
The coalition is the second time Austria has seen the FPOe, formed by former Nazis in the 1950s, enter the government fold after a first spell in 2000-2005. That first occasion brought widespread international opprobrium and a swathe of demonstrations at home.
The FPOe has since softened its image. It won 26 percent of the vote in elections on October 15,
Kurz took over the OeVP in May and yanked it to the right, securing his party first place in October elections.
FPOe Interior Minister Herbert Kickl sparked an outcry Thursday by saying the government wants to "concentrate" asylum-seekers, employing a word widely associated with Nazi camps, prompting the opposition Green Party to warn against the "language of National Socialism creeping into our way of thinking and feeling".
Strache also caused unease earlier this month by appearing to suggest that asylum-seekers should be kept in empty military barracks and subject to an evening curfew.
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