Guizhou police fired guns into the air early on Sunday as witnesses said a gang of 'at least 200 men' tried to drive residents out of their homes before demolishing their houses.
Five residents were injured, Agence France-Presse reported, and the manager of a company responsible for the demolition of the area was detained.
Ten families living in the area blamed a property developer for the mob and denied they had violated any agreements, saying the two sides were still discussing compensation.
The incident happened at about 1am in Qingshan Road, in the provincial capital Guiyang , the Guizhou Metropolitan Daily reported.
Resident Wang Xuena told the newspaper that seven club-wielding men had broken into her home, threatened to kill her if she called police, and dragged her mother out before another group pulled down the houses. She said cash and other valuables were stolen.
Dozens of police officers had arrived at the scene, AFP reported, though the thugs tried to stop residents calling the emergency hotline.
'They fired into the air to warn the people,' an officer surnamed Wang was quoted as saying. Police could not arrest any of the attackers because they had fled, leaving clubs and knives on the ground.
Some homes were reduced to debris, while luckier residents had half of their homes left standing.
They remained outside the damaged houses to prevent another riot instead of staying in temporary homes offered by the government.
Wang Xuena told the newspaper that the incident was unexpected because compensation negotiations, in which the property developer offered to pay 3,200 yuan (HK$3,637) per square metre of land, were ongoing.