The police in Nepal fired rubber bullets and tear gas as hundreds of people protested over a $500m US grant going before parliament, BBC reported.
Nepal signed the Millennium Challenge Corporation pact to fund infrastructure projects in 2017 and it has been a bone of contention between the US and China.
Several people were injured in the demonstrations outside the Parliament in Kathmandu.
Groups opposing the US funding have said it undermines Nepal's sovereignty, the report said.
Also Read | UK Lassa fever death shows rise in global infectious disease risk
Protesters were also targeted with water cannon in an attempt to disperse Sunday's demonstration. Police had stones thrown at them.
The Nepal Parliament has until February 28 to ratify the deal, which has been delayed by divisions within political parties, including the ruling coalition.
Nepalese media has reported that the US administration has held conversations with Nepali politicians urging them to endorse the pact by the end of the month or face the ties between the countries being reviewed.
In response, Chinese foreign ministry spokesman Wang Wenbin said such development co-operation should "come with no strings attached".
Also Read | Ukraine reports further ceasefire violations
The Millennium Challenge Corporation was created by the US Congress in 2004 and offers large grants to support economic growth and reduce poverty, according to Washington DC.
