* Largest demonstration in year of unrest
* Revered Shi'ite cleric leads rally
* Police fire teargas to stop return landmark to roundabout (Adds march ends, clashes in some districts in paragraphs 8-9)
MANAMA, March 9 (Reuters) - Tens of thousands of Bahrainis demonstrated on Friday to demand democratic reforms, stepping up pressure on the U.S.-allied government with the biggest protest yet in a year of unrest.
They began marching along a highway near Manama in response to a call from leading Shi'ite cleric Sheikh Isa Qassim, who urged people to renew their calls for greater democracy.
A live blog showed images of the protesters carrying banners denouncing "dictatorship" and demanding the release of detainees.
"We are here for the sake of our just demands that we cannot make concessions over and we stick with them because we have sacrificed for them," Qassim said before the march in his weekly sermon in the Shi'ite village of Diraz.
Qassim and other Shi'ite clerics led the march.
"It is the biggest demonstration in the past year. I would say it could be over 100,000," said a Reuters photographer after protesters filled up the main Budaiya highway in the area of Diraz and Saar, west of Manama.
Later hundreds of protesters broke away from the march to walk down the main highway into Manama in an attempt to return to a traffic intersection that protesters occupied for a month during last year's uprising.
Activists said riot police blocking the road fired tear gas and the interior ministry said protesters threw stones. Clashes continued in the area for over an hour. Activists also reported clashes with police later in the capital's Makharqa district, as well as in the village of Eker southeast of the Manama.
However, elsewhere the march wound down peaceably as the majority of protestors streamed home.
The government, pressed by its Western allies to allow peaceful expression of dissent, has allowed more opposition protests in recent months.
A statement from the royal court praised the Qassim march and a small rival rally of several hundred government loyalists under the name "Fateh Gathering" as signs of democratic maturity.
"The events at the Fateh Gathering as well as the gathering in the Northern Governorate are a source of pride for Bahrainis as a model of correct democratic behaviour," state news agency BNA reported.
Majority Shi'ites were in the forefront of the protest movement which erupted in February 2011 after uprisings in Egypt and Tunisia.
The ruling Sunni Muslim Al Khalifa family crushed the protests a month later, imposing martial law and bringing in Saudi and United Arab Emirates troops to help restore order. It accused Shi'ite power Iran of fomenting the unrest.
On Friday, Iraqi followers of Shi'ite cleric Moqtada al-Sadr demonstrated in Basra in support of the Bahraini opposition. Around 3,000 people chanted anti-Saudi slogans and carried Bahraini and Iraqi flags.
DAILY CLASHES, ECONOMY STALLED
Bahrain, where the U.S. Fifth Fleet is based, has remained mired in crisis and Shi'ite youths clash daily with riot police. The unrest has slowed the economy in what used to be a major tourism and banking hub.
Tension has risen around the Feb. 14 anniversary of the uprising, with security forces maintaining a tight grip on the intersection formerly known as the Pearl Roundabout, which remains closed.
Pro-government Sunni groups have organized smaller counter-rallies, warning authorities not to enter into a dialogue on reforms that could give the elected parliament legislative clout and the power to form governments.
Those groups look to Sunni power Saudi Arabia as a key ally and demonise the opposition as loyal to Iran, a charge the opposition parties deny. Analysts say Riyadh does not want Bahrain to agree to reforms that empower Shi'ites.
Jamal Fakhro, deputy head of the appointed house of parliament, said recent contacts between the royal court and opposition parties meant there was no need for the march.
"I don't think we need any pressure to start something already started. If you are talking to the government, why go to the street again and show muscles?" he said. "You either accept dialogue or you go to the streets."
Activists say Wefaq, which jostles for position alongside more hardline groups who reject the monarchy, wants to show that it still dominates the opposition, which includes secular groups.
One activist who declined to be named said many of the banners during the march, such as "No dialogue with killers", came from an underground group calling itself Feb. 14 Youth Coalition.
Activists say at least 27 people have been killed in the unrest since June, many from the effects of tear gas. The government disputes the causes of death.
King Hamad appeared to dismiss the opposition last month, saying they were disunited.
Qassim said Friday's march would show how strong the opposition was. "The march will either prove your are only an isolated minority making demands, or that the demands are widely popular," he said in his sermon, which was posted on YouTube. (Additional reporting by Yara Bayoumi in Baghdad; Writing by Andrew Hammond; Editing by Andrew Roche)