Organisers the Trades Union Congress (TUC), a federation of the country's main trade unions, estimated that around 80,000 supporters had gathered on the banks of the River Thames.
Led by TUC chief Frances O'Grady, other union leaders and a marching band, the mile-long train of demonstrators set off from Waterloo Bridge at noon (1100 GMT) before snaking past Trafalgar Square on its way to Hyde Park, where it was to end.
The "Britain Needs a Pay Rise" march organisers are calling on the government to take action to increase wages in both public and private sectors, claiming they have slumped by 50 pounds (USD 80) a week since 2008.
"Everyone in public services has been hammered for the last three or four years, I've had a 25 percent pay cut and they're (the government) still not saving the money they need to save."
Led by drummers, brass bands, stilt-walkers and members dragging sound systems, the demonstration had a carnival air, with a large but low-visibility police presence.
Teachers, nurses, firefighters, chiropodists and museum workers were among those shaking football-style rattles and blowing whistles in protest.
"These are the worst cuts in history to our service," Matt Wrack, chief of the Fire Brigades Union, told AFP.
Some wore T-shirts demanding "Save Our National Health Service", others called for the "super-rich parasites to pay their taxes".
Despite the huge numbers marching, the British public has largely accepted the need to trim public spending, and both major parties vow they will not radically increase spending if they win next year's general election.
"I think there are people who are misinformed," Conan Doyle, 31, volunteer with anti-cuts group People's Assembly, said of those supporting austerity.
"You ask a young mother, does she like austerity, when it comes to a choice between feeding or clothing, she's going to say no. The people at the top have been able to increase their wealth with impunity.
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