It was reporrted that shots were fired at the protesters, killing at least one person.
An Associated Press photographer saw one person shot dead and several others who appear seriously wounded in Tehran's Azadi Square.
The shooting came from a compound for volunteer militia linked to Iran's powerful Revolutionary Guard.
Shouting "Allahu Akbar" (God is greatest), the protesters had converged on Revolution Square, where Mousavi addressed a small part of the crowd through a loud hailer and held his fists clenched above his head, in a sign of victory, after two days of the capital's most violent unrest since the 1979 Islamic Revolution.
The gathering, which took place in defiance of an Interior Ministry ban, was a reply to Ahmadinejad's government-organised victory rally, which also drew vast crowds on Sunday.
Supporters stretching along several kilometres of a Tehran boulevard waved green flags, Mousavi's campaign colours, and held portraits of him aloft as they tried to take pictures on their cellphones - even though his words could not be heard above the noise of the crowd.
Iran's state television said Mousavi, looking smiling and relaxed in a striped shirt, had said he was ready in case the election was re-run.
"Mousavi, take back our votes," the marchers chanted before Mousavi appeared, along with other pro-reform leaders who backed his call for Friday's election result to be overturned.
The disputed election has dismayed Western powers trying to induce the world's fifth-biggest oil exporter to curb nuclear work that they suspect is for bomb-making, a charge Iran denies.
U.S. CONCERN
U.S. leaders have reacted cautiously, in the hope of keeping alive President Barack Obama's strategy of engagement with Iran.
White House spokesman Robert Gibbs told reporters: "Obviously we continue to have concerns about what we're seeing."
But the European Union increased pressure on Iran to agree to opposition demands to investigate Ahmadinejad's landslide election victory and halt a crackdown on protesters.
France, Germany and Britain led the EU campaign to persuade Iran to clarify the election results.
In Paris, Foreign Ministry spokesman Eric Chevallier said Iran's ambassador had been summoned to hear French concerns over "the brutal repression of peaceful protests and the repeated attacks on the liberty of the press and freedom of speech".
Britain said it was worried that events in Iran might affect any future international engagement with its government.
"The implications are not yet clear," said British Foreign Secretary David Miliband. "What we know is that there has been no Iranian response to the outreach that has been made by the international community, including the United States."
In Washington, U.S. pollsters said a survey they had taken three weeks before the vote showed Ahmadinejad leading by a 2-to-1 ratio, greater than the declared election results.
The poll showed his victory might reflect the will of the people and not widespread fraud, pollsters Ken Ballen and Patrick Doherty said in a column in the Washington Post.
However, the poll was taken at around the time Iran's Guardian Council approved the four candidates to stand in the election. At the time Mousavi, who served as prime minister in the 1980s, had been out of the political spotlight for 20 years.
Ahmadinejad, by contrast, had been touring the country for months, pledging economic support for poorer districts where analysts say he draws much of his support.
Mousavi's campaign gathered visible momentum in the last two weeks before the poll, particularly among younger middle and upper class voters in the capital Tehran.
The protests over Ahmadinejad's re-election are the sharpest display of discontent in the Islamic Republic for a decade - and have drawn broader support than the student unrest of 1999.
"I just want to show the president that we are not bandits," said Maryam Sedaghati, a pro-Mousavi demonstrator in her 20s wearing a green headscarf. "I want my vote back."
A retired 61-year-old teacher who gave his name only as Ali said the rally recalled the 1979 Islamic revolution. "We used to protest against the shah in this street. I'm so sorry that now we have to walk the same street to preserve our rights."
Mousavi has asked the watchdog Guardian Council to annul the result, citing irregularities. The Interior Ministry and the president have rejected charges of fraud.
Supreme Leader Ayatollah Ali Khamenei, who has endorsed the election result, met Mousavi on Sunday and told him to pursue his complaints "calmly and legally", state television said.
Iran's reformist former president, Mohammad Khatami, assailed the authorities for denying permission for the pro-Mousavi rally and said the election had dented public trust.
The 12-man Guardian Council, whose chairman, Ayatollah Ahmad Jannati, endorsed Ahmadinejad before the vote, said it would rule within 10 days on two official complaints it had received from Mousavi and another losing candidate, Mohsen Rezaie.
The council vets election candidates and must formally approve results for the outcome to stand.
Ebrahim Yazdi, leader of the banned opposition Freedom Movement, said Ahmadinejad's attacks on his opponents had opened a "Pandora's box" of divisions within the establishment and between the people and their government.
"It is the biggest crisis since the revolution," he said.
About 400 pro-reform students, many wearing green face masks to conceal their identity, gathered earlier at a mosque in Tehran University and demanded Ahmadinejad's resignation.
Some said members of a religious militia had attacked their dormitory. "They hit our friends and took away at least 100 students. We have no news about their whereabouts," said one.
University officials denied the reported incidents.
A burnt-out shell of a bus or truck lay inside the university's dormitory compound, Reuters television pictures showed. Across the road, a bank office had been gutted by fire.
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