Protesters are angered by a $700 million payment made to his bank account from unnamed foreign donors.
It was discovered last month during a probe into alleged mismanagement at the debt-laden state fund 1Malaysia Development Berhad (1MDB).
PM Najib Razak has denied any wrongdoing.
The pro-democracy group Bersih has also called for protests in the cities of Kota Kinabalu and Kuching on the Malaysian side of Borneo.
Kuala Lumpur authorities have rejected the group’s application for a permit to protest and Malaysian police have declared the rallies illegal.
Security is tight and access to Kuala Lumpur’s Independence Square has been blocked. Eyes will be focused on any possible army intervention.
At the last big rally in 2012, police used water cannon and tear gas to disperse protesters.
Estimates put the number of protesters in Kuala Lumpur at 50,000 to 80,000, though figures issued by the police suggested much lower numbers.
A carnival atmosphere, punctuated by music, vuvuzelas and political speeches, prevailed in the city centre.
The leader of Bersih, Maria Chin, said the protest was not anti-government.
“We don’t want to topple the government but we want to topple corrupt politicians,” she told the Malaysian Insider.
The demonstrations coincide with preparations for National Day on August 31 – the former British colony’s 58th anniversary of self-rule.
Najib Razak said on his blog he did not want a “provocation” to be triggered.
He said: “Whatever the disagreements or misunderstandings between us, National Day should not be a stage of political disputes.”
The main accusation against Najib Razak is that he took $700 million from the indebted 1MDB, which he established in 2009 to try to turn Kuala Lumpur into a financial hub.
Cabinet ministers have said the money transfers were “political donations” from unidentified Middle Eastern sources, and that there was nothing improper. No further details have been given.
1MDB has said it has never given money to Najib Razak and called the accusations “unsubstantiated”.
Najib Razak retains significant support from the long-ruling Barisan Nasional coalition and from within his party, the United Malays National Organization.
Quincy Jones, the celebrated musician and producer who worked with Michael Jackson, Frank Sinatra, Ray…
Misleading allegations, rumours and outright lies about voting and fraud are flooding online spaces in…
At least 158 people have died in Spain's worst flooding disaster in generations. On October…
Google has been fined two undecillion (a two followed by 36 zeroes) roubles by a…
Embarking on a home remodel is an exciting journey, promising enhanced comfort, increased property value,…
The US presidential candidates continued to campaign across key swing states on October 20. Footage…