Soldiers on Tuesday encircled a pro-government "Red Shirts" protest in Thailand's capital, the rally leader said, after the military declared martial law to quell months of political unrest.

"We have been surrounded by troops on all sides," Jatuporn Prompan told AFP.

The military is trying to convince the Red Shirts to end their gathering, according to Paradorn Pattanatabut, chief security adviser to Prime Minister Niwattumrong Boonsongpaisan.

"The military is negotiating with the Red Shirts to disperse," he said.

The Red Shirts were angered by the dismissal of prime minister Yingluck Shinawatra earlier this month in a controversial court ruling.

The movement has warned of the threat of civil war if power is handed to an unelected leader as demanded by the opposition.

A military crackdown on Red Shirts protests in 2010 under the previous government left dozens dead.(AFP)