Worshippers were leaving the Grand Anwar mosque in Addis Ababa calmly when some youths began to shout "Allahu Akbar" (God is greatest), and shots rang out, sowing panic, AFP journalists saw.
Some in the crowd threw stones at police, who responded with tear gas.
It was unclear whether the police used live ammunition, plastic projectiles or blank shots.
Shots continued to be heard for about two hours before calm returned and police cordoned off roads around the mosque.
Amir, a young worshipper who was at the mosque for Friday prayers said: "We more or less knew what was going to happen after prayers."
"Hundreds of our brothers and sisters were arrested last week... people are furious our mosques are being destroyed."
Last Friday, clashes erupted outside the mosque, leaving two people dead and dozens injured, said police who said they had made 114 arrests.
Several Muslim places of worship have been destroyed in Addis Ababa in recent months as part of a controversial urban planning project which has sparked anger among the faithful.
The urban planning project, known as Sheger City, involves the fusion of several municipalities in the Oromia region on the outskirts of the capital.
It has led to the demolition of homes and businesses, and local rights activists have slammed it as "illegal."