* Police fire water cannon, teargas at protesters
* Clashes smaller, less violent than previous bouts
* "We will not back down", protester says (Adds presidency statement)
By Marwa Awad and Ali Abdelaty
CAIRO, Feb 11 (Reuters) - Protesters demanding the departure of Egyptian President Mohamed Mursi clashed with police outside his palace on Monday on the second anniversary of the overthrow of veteran autocrat Hosni Mubarak.
Dozens of youths threw rocks at the Ettihadiya palace after a peaceful march by thousands of demonstrators who accused Mursi's conservative Muslim Brotherhood of hijacking Egypt's democratic revolution and seeking to monopolise power.
Police responded by firing water cannon and teargas from the walls of the presidential compound, which have been raised in some places and shielded by barbed wire after petrol bombs set fire to a building in the grounds last week.
The clashes, which appeared smaller and less violent than previous bouts of anti-Mursi unrest, were broadcast live on some television channels.
"We may be few in numbers but we will not back down from fighting criminals dressed up in police uniform," said Ahmed Farghaly, a protester outside the presidential palace.
Riot police later emerged to chase the protesters away from the palace and into side-streets.
The presidency's spokesman Yasser Ali called on all parties to condemn the clashes.
"Violence will burn the fingers of those who call for it and use it ... The presidency supports the continuation of peaceful protests and freedom of expression but any attempt to veer off peaceful protesting will be dealt with firmly," Ali said on state television late on Monday.
He dismissed speculation that President Mursi may sack the existing cabinet and form a national unity government, saying it had "no basis in truth".
The main Cairo rally was in the central Tahrir Square, focal point of three weeks of demonstrations in 2011 that led to Mubarak's resignation.
Mubarak, who ruled Egypt with an iron fist for 30 years, was sentenced to life imprisonment last June for his role in killing protesters after a trial seen as setting a precedent for holding Middle East autocrats to account.
Opposition parties are now demanding Mursi be put on trial over the deaths of nearly 60 demonstrators in anti-government protests that erupted on Jan. 25, but the public prosecutor says there is no evidence to link the democratically elected president with the deaths. (Reporting by Marwa Awad; Writing by Paul Taylor; Editing by Michael Roddy)