Opponents of the proposal fear further erosion of rights and legal protections in the free-wheeling financial hub - freedoms which were guaranteed under the city's handover from British colonial rule to Chinese sovereignty in 1997.
Early estimates suggested several thousand people had joined the march along Hong Kong Island from Causeway Bay to the council in the Admiralty business district.
Veteran Hong Kong activist and former legislator Leung Kwok-hung said the government's move risked removing Hong Kongers' "freedom from fear."
"Hong Kong people and visitors passing by Hong Kong will lose their right not to be extradited into mainland China," he said. "They would need to face an unjust legal system on the mainland."
Some younger marchers said they were worried about traveling to China after the move, which comes just as the government encourages young people to deepen ties with the mainland and promotes Hong Kong's links with southern China.
The peaceful marchers chanted demands for Hong Kong's Executive Carrie Lam to step down, saying she had "betrayed" Hong Kong. Some sported yellow umbrellas - the symbol of the Occupy civil disobedience movement that paralyzed parts of Hong Kong for 11 weeks in 2014.