Hundreds of riot police cordoned off the city's main Taksim Square to prevent the "Trans Pride" rally taking place during the Muslim holy month of Ramadan.
Authorities have banned transgender and gay pride marches this month, citing security concerns after the ultra-nationalist warnings against any such events on Turkish soil.
"Football fans can rally in this country whenever they want. We were going to do a peaceful activity," said Ebru Kiranci, spokesperson of the Istanbul LGBTI Solidarity Association.
"(The) holy month of Ramadan is an excuse. If you are going to respect Ramadan, respect us too. The heterosexuals think it's too much for us, only 2 hours in 365 days," she said.
The annual gay pride parade, described as the biggest in the Muslim world, was due to take place on June 26. Istanbul has held gay pride parades since 2003, attracting tens of thousands of marchers, but last year's was broken up by police.
Although the Turkish republic is constitutionally secular, the vast majority of the population is Muslim.
Tayyip Erdogan, who became president in 2014 after 11 years as prime minister, has steadily boosted the power of the head of state's office with appeals to conservative nationalist and religious-minded Turks.
This has effectively shifted Turkey from a parliamentary to a presidential system even before Erdogan seeks to amend the constitution through a referendum to make that official.
Unlike many other Muslim countries, homosexuality is not a crime in Turkey but hostility toward gays remains widespread. Critics say Erdogan and his Islamist-rooted AK Party have shown little interest in expanding rights for minorities, gays and women, and are intolerant of dissent.
The assault by the riot police targeted protesters angered by an attack on a record store launching the new Radiohead album on Saturday.
A group of men armed with sticks and bottles attacked the store late on Friday, apparently in protest at people drinking beer during Ramadan, video footage on social media showed.