Police used teargas shells and batons to disperse the mourners who were carrying black flags and chanting religious slogans, they said, adding that several mourners were detained.
Muharram processions through Lal Chowk and Dalgate were banned after the eruption of militancy in the Valley in 1989.
However, the processions are allowed in interior parts of the city, including Zadibal and various Shia-dominated areas across the Valley.
Meanwhile, a Shia organisation criticised the authorities for imposing curfew and using force to "curb religious freedom".
"Jammu and Kashmir is the only state where the government imposes ban on these processions during the holy days of Muharram," Pairwan-i-Villayet head Maulana Sibti Muhammad Shabir Qumi claimed in a statement.