Thaksin Shinawatra said yesterday the Thai government feared his return as about 17,000 of his 'Red Shirt' supporters seeking a royal pardon for the fugitive former premier rallied in Bangkok.

The demonstrators gathered amid tight security and accused the government of delaying their petition for a pardon for Thaksin, ousted by a 2006 coup, who lives in self-imposed exile to avoid a two-year jail term for corruption.

Police estimated that around 17,000 attended the rally in front of the government buildings in the city's historic quarter, where a harsh internal security law was invoked and 2,000 police were deployed to prevent violence.

Thaksin thanked his supporters as he addressed the crowds for around 10 minutes by phone, but told them "don't expect anything from this government".

"You came here today to seek the progress of a royal pardon from a government that is afraid of my return," he said. Although he did not mention his location, 'Red Shirts' on stage said he was calling from Papua New Guinea.

"We will fight peacefully. We have to be peaceful so that His Majesty will recover soon," Thaksin added.

Thailand's widely revered King Bhumibol Adulyadej, 81, has been in hospital for almost a month recovering from a lung infection and fever.

Rumours that the monarch's health had deteriorated earlier last week sent the Thai stock market tumbling because he is considered the only unifying figure in a politically fragile nation, though the bourse rebounded last Friday.

His youngest daughter Princess Chulabhorn also allayed concerns, saying at the Thai embassy in Germany late on Friday that his condition is improving - the first public statement on the king's health from a royal since he was admitted.

Prime Minister Abhisit Vejjajiva has said that it would take at least two months to process the petition for Thaksin, which was handed over by 'Red Shirts' in mid-August and must be submitted by the government to the king for a pardon.

But 'Red Shirt' protest leader Jatuporn Prompan accused the government of delaying their submission, which they say at least 3.5 million people signed in support of Thaksin.

"We are here to send a signal to the government... We will come back by the end of the month. The protest will not end quickly," Jatuporn told reporters.

Since the coup three years ago, Thailand has remained deeply divided between twice-elected Thaksin's supporters and his foes.

The billionaire's backers forced the cancellation of a major Asian summit in April and then rioted for two days in Bangkok before a crackdown by the army. Two people were killed and 123 injured.

Rival royalist 'Yellow Shirts' staged a crippling blockade of Bangkok's airports in late 2008, triggering the collapse of the previous, pro-Thaksin government and ushering Abhisit to power.

Thaksin still enjoys huge support among Thailand's poor, particularly in rural northern parts of the country, but is hated by the Bangkok-based elite in the palace, military and establishment.

His supporters have held several mass rallies in the capital. In August more than 30,000 'Red Shirts' gathered to deliver the petition, and last month at least 26,000 took to the streets to mark the third anniversary of the coup.

The former policeman is currently being tried in absentia on a separate corruption charge relating to $2.2 billion of funds that were frozen by an anti-graft body soon after the coup.

Abhisit has said Thaksin, who has several passports and divides his time between a number of countries, must return to Thailand to face justice.