Thousands rallied for Indigenous peoples' rights on Australia Day on Monday but one protest was interrupted when police found a suspicious device containing screws and ball bearings.

Large crowds braved a heatwave across much of the country to demonstrate on the national holiday, which marks the 1788 arrival of a British fleet in Sydney Harbour.

Activists demanded justice for Indigenous peoples, many carrying banners proclaiming: "Always was, always will be Aboriginal land."

In Perth in Australia's west, police said they evacuated a rally of a few hundred people after a "very rudimentary" device the size of a coffee cup was found in front of a stage. It contained screws and ball bearings wrapped around an unknown liquid in a glass container.

Detectives arrested a 31-year-old man and searched his home after he "told police it may contain explosives", Western Australia Police Force Commissioner Col Blanch told reporters.

The man had not been charged yet, he said.

In Sydney, police allowed protests to go ahead despite new curbs introduced after gunmen opened fire on a Hanukkah festival on Bondi Beach on December 14, killing 15 people.

The "overwhelming majority" of people enjoyed the day normally in Sydney, said New South Wales Assistant Commissioner Brett McFadden.

However, police arrested a 31-year-old man in the city on suspicion of hate speech "unequivocally assigned with neo-Nazi ideology". Separately, a 17-year-old boy was arrested for allegedly assaulting police.

Many Indigenous rights activists describe the January 26, 1788, British landing as "Invasion Day", a moment that ushered in a period of oppression, lost lands, massacres and Indigenous children being removed from their families.

Aboriginal and Torres Strait Islander peoples make up about four percent of the population.

They still have a life expectancy eight years shorter than other Australians, higher rates of incarceration and deaths in custody, steeper youth unemployment and poorer education. (AFP)