Hong Kong's beleaguered leader faces a huge task to bridge a widening political gap, analysts said Wednesday, after a mass rally pushing for his resignation and a swifter path to democracy under Chinese rule.

Tens of thousands of people marched on New Year's Day in two opposing demonstrations, heaping pressure on the city's Beijing-backed chief executive Leung Chun-ying who is also embroiled in an embarrassing renovations scandal.

Pro-democracy campaigners, some waving flags from the British colonial era, called for direct leadership elections, while a pro-government camp said Leung should be allowed to get on with his job of addressing a slowing economy and housing shortages.

Observers said the rare duelling rallies illustrate new divisions in the regional financial hub, where political discontent is increasing 15 years after Hong Kong reverted to Chinese rule.

They said Leung faces an urgent task to build trust and avoid the fate of his predecessor, Hong Kong's first post-handover chief executive Tung Chee-hwa, who had to step down after half a million people marched against him in 2003.

While Hong Kong has long had a vocal pro-democracy contingent, which on Tuesday held up posters portraying Leung as a vampire and a wolf, a new group is emerging which believes the city should get back to business.

"Increasingly we detect a sentiment that a lot of people think that there are too many quarrels," said Joseph Cheng, a professor of politics at Hong Kong's City University.

"You have resentment against this chaotic, disunited situation in the territory and it seems this group is getting bigger and bigger," he told AFP.

The protesters who took to the streets to demand Leung's resignation accused him of lying in a row over illegal structures at his luxury home -- a highly sensitive issue in the space-starved city.

Demonstrators have used the scandal to bolster their call for universal suffrage to choose the city's leader, as Leung's popularity ratings tumble ahead of an impeachment bid in the legislature next week.

The former British colony, which was returned to Beijing in 1997, maintains a semi-autonomous status with its own legal and financial system and guarantees of civil liberties, but it does not yet get to choose its leader by popular vote.

Leung was elected to the post by a 1,200-strong committee dominated by pro-Beijing elites after his election rival Henry Tang was brought down by a row over unauthorised alterations at his own home.

"Leung's scandal and how he handled it meant a lot of people have low trust in him and it's very difficult to recover that, although he is doing okay on the policy front," Chinese University analyst Ma Ngok said.

Beijing has said the city's leader could be directly elected in 2017 at the earliest, with the legislature following by 2020.

Ma said Leung is likely to unveil populist measures such as cash handouts and welfare benefits in a January 16 annual policy address, to appease public sentiment.

Leung has also attempted to tackle citizens' gripes by introducing measures to boost housing affordability in one of the world's most expensive property markets, and curbing the flood of mainland Chinese women coming to Hong Kong to give birth, which has strained medical resources.

The South China Morning Post said in an editorial that the "strong outpouring of discontent should not be taken lightly".

"The government should respond. Like it or not, the political reality is that Leung's fate lies in the hands of Beijing rather than Hongkongers," it said, adding that Leung is unlikely to step down as he still enjoys Beijing's backing.

"If that is the case, it is imperative for him to bridge the divide and lead us forward."