Rashid attempted to lead the march from Sher-i-Kashmir Park here to Lal Chowk against the government decision.
But as the protesters reached the GPO Srinagar, police swung into action and detained the independent legislator from north Kashmir's Langate constituency, along with his supporters, a spokesman of his Awami Ittehad Party (AIP) said.
Talking to reporters before being detained, Rashid said the government decision to grant domicile certificates to West Pakistan Refugees (WPRs) was "totally unacceptable to us".
"Time has come for Chief Minister Mehbooba Mufti to break this alliance (with BJP) and go to people once again (to seek votes)," he said.
Rashid vowed to sit on a day-long "hunger strike" in front of chief minister's residence at Gupkar here to protest the government decision.
The WPRs, settled in Jammu and Kashmir, are citizens of India and have the right to vote in parliamentary elections. However, they are not permanent residents of the state in terms of Jammu and Kashmir Constitution. They do not enjoy voting rights to the state assembly and local bodies.
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