The crowd in Parliament Square had been waving placards supporting the group that was banned this month under anti-terrorism legislation, the force announced in a post on X.
People from the rally, some wearing black and white Palestinian scarves, were taken away in police vans.
British lawmakers proscribed the group earlier this month after some of its members broke into a Royal Air Force base and damaged planes in protest against Britain’s support for Israel.
Membership of Palestine Action now carries a prison sentence of up to 14 years.
The group has called the decision “authoritarian”, and a challenge to the ban will be heard at London’s High Court on Monday.
Palestine Action is among groups that have regularly targeted defence firms and other companies in Britain linked to Israel since the start of the conflict in Gaza.
Police have arrested scores of the group’s supporters at rallies across Britain since the ban came in.