Around 200 officers swooped on the square, and protesters say around 40 people were arrested.
The remaining protesters were moved out of the square and down Elizabeth Street. They are now meeting to decide what to do next.
Protester Time spokesman Davis Frank says riot police turned up around 5.00am (AEDT).
“Seeing people who have been peaceful for eight days, crying and screaming in pain after they were woken up out of their sleep – it doesn’t make any sense,” he said.
Protester Amber Wallace says she was given just minutes to pack up before being moved.
“We didn’t even get enough time to talk to our neighbour about what was going on,” she said.
“They just did a conquer and divide – they got us while we were asleep. That was so completely unprovoked.”
Another protester says he was assaulted by officers.
“I screamed, I was saying ‘release the handcuffs, loosen the handcuffs my arm is going to break’ – I said it over and over,” he said.
Police confirmed the operation to move people out of Martin Place, saying they were in breach of Sydney of City regulations.
They last night charged two people involved in the protest with assaulting a police officer after they refused an order to disperse.
The Occupy Sydney protest started last week in response to the world wide movement began in New York against what protesters describe as corporate greed.
Meanwhile, Occupy Melbourne protesters have voted to halt their protests until they will set up camp at the Treasury Garden parklands later this week.
The decision comes after violence erupted in the CBD on Friday, when police began moving hundreds of protesters who were camping in the city square.
Police used capsicum spray, horses and dogs to vacate the city square, with some dragging people away.
Victorian Premier Ted Baillieu has praised police for their actions.
“I thought Victoria Police handled it exceptionally well. Everybody has a right to protest and we will uphold that but there is a limit,” he said today.
“These individuals, these groups were given ample time and fair warning and I think Victoria Police handled it very well.”
A spokesman for the activists, Nick Carson, says he is hopeful Friday’s chaotic scenes will not be repeated this week.
“If the city of Melbourne or Robert Doyle or Ted Baillieu want to move their constituents out of their own public parks then we’d just encourage them to do that peacefully,” he said.