Turkey told Israel that it would "suffer the consequences" after at least 10 pro-Palestinian activists were killed when Israeli commandos boarded a convoy of aid ships heading to Gaza.
About 300 people waving Palestinian flags and wearing black-and-white kaffiyeh headscarves rallied outside the Israeli consulate in Istanbul after news of the operation emerged.
"Down with Zionist, Israeli imperialism," protesters shouted as police backed by armoured vehicles and water cannon barred them from moving towards the building.
Other chants called for Turkey to send troops to Gaza and for the Turkish ships to be released.
A diplomatic furore between Turkey and Israel, which have maintained close military ties, broke out after Israeli commandos stormed a ship with 700 people on board who were accompanying eight other vessels carrying 10,000 tonnes of medical supplies, housing material and other aid to Gaza.
"Israel once more, clearly showed it ignores human life and peaceful initiatives by targeting innocent civilians. We strongly denounce Israel's inhumane interception," the Foreign Ministry said in a statement.
It called the Israeli action unacceptable and warned of possible "irreparable consequences in our relations". Ankara had called Israel's ambassador to the ministry.
Television images showed dozens of people gathered outside Israeli Ambassador Gabby Levy's residence.
The convoy was organised, among others, by a Turkish human rights organisation, the Istanbul-based Foundation for Human Rights and Freedoms and Humanitarian Relief (IHH).
Turkey had urged Israel to allow it safe passage and said the 10,000 tonnes of aid the convoy was carrying was humanitarian.
Relations between Israel and Muslim Turkey, once each other's closest allies in the region, have soured since last year when Prime Minister Tayyip Erdogan began repeatedly criticising Israeli policy towards Palestinians.
Erdogan became a hero across the Islamic world by publicly berating Israeli President Shimon Peres when they shared a platform at the World Economic Forum in Davos last year.
Relations deteriorated further this year when an Israeli minister humiliated Turkey's ambassador to Israel on television.
Erdogan's Islamist leaning AK Party will seek a third consecutive term in office at an election due by July next year.
APPEALS FOR CALM
Deputy Prime Minister Bulent Arinc chaired an emergency meeting with Prime Minister Erdogan and Foreign Minister Ahmet Davutoglu to discuss the Turkish response.
Armed Forces Chief General Ilker Basbug cut short a visit to Egypt to return home, Turkish media reported, while Davutoglu was reported to have spoken on the telephone with Israeli Defence Minister Ehud Barak.
The protesters in Istanbul were preparing to march to central Taksim Square and traffic was blocked up for miles along a thoroughfare.
While the governor of Istanbul urged protestors to stay calm, emotions ran high.
Hamza, a 19-year-old student who declined to give his last name, said Israel had sought to provoke a war in the region.
"War should be our response," he said. "Our reaction has to be tougher than what the Israelis did to these innocent people.
Turkish stocks fell nearly 2 percent at Monday's opening and the lira and bond prices also weakened as traders said relations between the two countries had entered uncharted territory.