The United States and the European Union have voiced deep concern about the detentions during the biggest protests seen in Russia in recent years, with the State Department describing them as an "affront to democracy".
A Moscow district court ordered Navalny, who said he plans to run for president next year, to pay a 20,000-rouble ($350) fine for having organised an unsanctioned protest.
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Navalny had called for Sunday's protests after publishing a report accusing Prime Minister Dmitry Medvedev of controlling a property empire through a murky network of non-profit organisations.
"The authorities are being accused of multi-million theft, but they remain silent," a haggard-looking Navalny said in court, insisting the protests were legal.
"More than 1,000 people were arrested yesterday but it is impossible to arrest millions," the 40-year-old lawyer said.
About 7,000 to 8,000 people demonstrated in the heart of the Russian capital on Sunday, according to police, making it one of the biggest unauthorised rallies in recent years.
The Kremlin branded the protest a "provocation", claiming children had been promised "financial rewards" to demonstrate.
Spokesman Dmitry Peskov said the Kremlin respects the population's "civic stance" when expressed in accordance with the law.
Without mentioning Navalny by name, Peskov said the Kremlin was worried that "some people will continue using (politically) active people... To their own ends, calling them to illegal and unauthorised actions".
Demonstrations were held not just in Moscow and Russia's second city Saint Petersburg but also in a number of provincial cities where protests are rarely seen.
They attracted a significant number of minors born during President Vladimir Putin's 17 years in power.
"I am very happy that a generation that wants to be citizens, that isn't afraid, was born in the country," Navalny said.
Navalny was arrested as he was walking to the Moscow protest and another 1,030 people were detained, according OVD-Info, a website that monitors detentions of activists.
The vast majority were released overnight after being fined, while about 120 remained in custody on Monday, OVD-Info said.
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