Security forces threw stones and jumped over fences as they broke up the demonstration. Dozens of students and monks were chased into a Buddhist monastery, said Honey Oo, a student leader.
"Many people were beaten and several arrested," she said by telephone.
After the crackdown, police were seen celebrating and shouting, "Victory! Victory!"
Information minister Ye Htut said 127 people, including 65 students, were detained and 16 police and eight demonstrators had been injured.
The nominally civilian government installed four years ago has been grappling with the consequences of newfound freedoms of expression. It has been especially sensitive about public protests, arresting hundreds of people since taking office for peacefully expressing their views.
In January, about a hundred students started marching from Myanmar's second biggest city, Mandalay, to the old capital, Yangon, to protest a new law that puts all decisions about education policy and curriculum in the hands of a group largely made up of government ministers, which critics say undermines the autonomy of universities.
Early Tuesday, the two sides had appeared close to reaching an agreement.
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