By Ahmed Hagagy

KUWAIT (Reuters) - Police in Kuwait used teargas and stun grenades on Sunday to disperse demonstrators as thousands marched in a protest against changes to the electoral law which the opposition has called a constitutional coup by the government, Reuters witnesses said.

Demonstrators had gathered in various parts of the capital, Kuwait City, to march towards the government's headquarters. Riot police surrounded some groups, gave them a few minutes to disperse, and then used teargas and stun grenades against them, witnesses said. Several people were injured.

Protesters later regrouped to form a larger crowd - estimated at more than 20,000 people - which gathered at a road near Kuwait Towers, a seaside landmark in the Gulf Arab state.

The authorities had previously promised to "decisively confront" protesters to prevent the demonstration.

The opposition decided to take to the streets after the government - which is dominated by the ruling Al-Sabah family - announced last week it was calling elections for December 1 and would change the electoral law "to preserve national unity".

The announcement was the latest move in an intensifying power struggle between the ruling establishment and parliament that has seen eight governments come and go since the emir, Sheikh Sabah al-Ahmad al-Sabah, came to power in 2006.

Kuwait's 83-year-old emir dissolved parliament on October 7. It was the sixth time the oil-rich state and key U.S. ally had disbanded its legislature since early 2006.

Kuwait's oil wealth and a generous welfare state have so far helped it avoid the kind of "Arab Spring" protests that forced out leaders elsewhere in the region. But the country has been convulsed by regular demonstrations since last year.

The opposition, including Islamists, liberals and tribal figures who won a majority in the 50-seat parliament in the last election in February, rejected the emir's proposed changes and said they would boycott the vote.

The opposition has called the changes - which allow voters to choose only one candidate per electoral district - "a coup against the constitution", saying the reform would prevent its candidates from winning the majority they won in the last vote.

Forging an electoral alliance, which depends on supporters of one candidate voting for another in exchange for reciprocal support, would become unfeasible under the new system, they say.

Sunday's demonstration began from a number of locations in Kuwait City after Muslim evening prayers.

Security forces had deployed extra police in the capital and set up barricades around a square near the palace of justice, where the country's courts are located.

Before it began, Dhari Al-Rujaib, a youth activist of the Progressive Current of Kuwait, said he was expecting up to 60,000 people to take part in a peaceful protest.

CRITICISM OF THE EMIR

Kuwait's opposition has been emboldened after Arab protests toppled four heads of state.

Some have been demanding a constitutional state and for the emir to resign but for governments to be formed by majority groups in the 50-member assembly. Others have made more modest demands for the government formed by the emir to be subject to full parliamentary scrutiny.

The Al-Sabah dynasty has ruled Kuwait for more than 250 years and although Kuwait allows more freedom of speech than some Gulf states, the emir is seen as untouchable and is referred to as "immune and inviolable" in the constitution.

Kuwaiti authorities arrested two opposition politicians on Thursday and interrogated a third after they made comments seen as criticizing the emir.

The events prompted the Al-Sabah family to issue a rare statement on Thursday calling for obedience to the emir.

The state news agency KUNA reported late on Saturday that Interior Minister Sheikh Ahmad al-Hamoud al-Sabah had instructed security forces to "decisively confront" any attempt to hold protests outside designated areas.

On Monday, police and protesters fought over a barricaded street after 5,000 people demonstrated outside parliament. Security forces arrested at least five people, including two former members of parliament.

The deepening crisis has taken its toll on the stock market, which dropped as much as 3.4 percent on Sunday, heading for its biggest daily fall since mid-2009, when shares were hit by the global financial crisis.

The crisis escalated in June this year when the top court annulled the last election which had been held in February, reinstating the previous, more government-friendly assembly.

Unlike other Gulf Arab states, Kuwait enjoys a more open political system that allows some parliamentary scrutiny over government decisions. But the emir still holds key levers of power, including appointing the prime minister.

The turmoil has not only paralyzed the political system but also blocked major economic development plans.

Sheikh Sabah warned in a speech on Friday that the recent political turmoil could lead to "strife that could be about to erupt and destroy our unity, disfigure our identity and tear apart our society into fragmented groups".

(Writing by Sami Aboudi; Editing by Andrew Osborn)