Riot police deploy pepper spray toward protesters gathered for a rally against a new law in Hong Kong. AFP

Hong Kong police fired water cannon on Wednesday to break up the first protest since China introduced sweeping security legislation and they made their first arrests under it, warning of punishment for advocating secession or subversion.

Beijing on Tuesday unveiled the details of the much-anticipated law after weeks of uncertainty, pushing China's freest city and one of the world's most glittering financial hubs onto a more authoritarian path.

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As thousands of protesters gathered downtown for an annual rally marking the anniversary of the former British colony's handover to China in 1997, riot police used pepper spray to make arrests, while shops and one metro station closed.

A woman reacts after she was hit with pepper spray deployed by police as they cleared a street in Hong Kong. AFP

"I’m scared of going to jail but for justice I have to come out today, I have to stand up," said one 35-year-old man who gave his name as Seth.

Crowds spilling out into the streets chanted "resist till the end" and "Hong Kong independence".

Police fired water cannon to chase them away and later said they had made 30 arrests for illegal assembly, obstruction, possession of weapons and violating the new law.

Earlier, police cited the law for the first time in confronting protesters.

Police spray pepper spray towards protesters in Causeway Bay during a march in Hong Kong on Wednesday. AP

"You are displaying flags or banners/chanting slogans/or conducting yourselves with an intent such as secession or subversion, which may constitute offences under the ... national security law," police said in a message displayed on a purple banner.

The law will punish crimes of secession, subversion, terrorism and collusion with foreign forces with up to life in prison and officially set up mainland security agencies in Hong Kong for the first time, with powers beyond city laws.

China's parliament adopted it in response to months of pro-democracy protests last year triggered by fears that Beijing was stifling the city's freedoms, guaranteed by a "one country, two systems" formula agreed when it returned to Chinese rule.

Authorities in Beijing and Hong Kong have repeatedly said the legislation is aimed at a few "troublemakers" and will not affect rights and freedoms, nor investor interests.

But critics fear it will crush the freedoms that are seen as key to Hong Kong's success as a financial centre.

Protests march on a street during a rally against a new national security law in Hong Kong on Wednesday. AFP

"With the release of the full detail of the law, it should be clear to those in any doubt that this is not the Hong Kong they grew up in," said Hasnain Malik, head of equity research, Tellimer in Dubai.

"The difference is that US and China relations are far worse and this could be used as a pretext to impede the role of Hong Kong as a finance hub."

In Beijing, Zhang Xiaoming, executive deputy director of Beijing's Hong Kong and Macau Affairs Office, told reporters suspects arrested by a new Beijing-run security office could be tried on the mainland.

He said the new office abided by Chinese law and that Hong Kong's legal system could not be expected to implement the laws of the mainland. Article 55 of the law states that Beijing's security office in Hong Kong could exercise jurisdiction over "complex" or "serious" cases.

"The law is a birthday gift to (Hong Kong) and will show its precious value in the future," Zhang said, adding the law would not be applied retroactively.

Reuters