Police stood guard over hundreds of people gathered in a tense Chinese city Wednesday, a day after authorities bowed to violent protests and cancelled plans to build a controversial factory.

The protests in Shifang city highlighted and fuelled concerns around China over the impacts of rampant economic development on the environment, with millions of Chinese closely following developments on the Internet.

Shifang authorities on Tuesday night announced they would not build the $1.6-billion metals factory -- after two days of clashes during which riot police used tear gas to quell thousands of protesters.

"Shifang from this day forward will not build this project," Shifang Communist Party chief Li Chengjing said in a statement.

Authorities also announced they would release 21 of 27 people initially detained, giving in to another key demand of the protesters.

The backdown over the factory and release of the detainees, which came a day after the government said initially that it would only suspend construction, appeared a rare win for grassroots environmental activism in China.

Incidents similar to the one in Shifang are reported regularly around China, many over environmental concerns that locals say are linked to corruption, but authorities typically quash the protests and push ahead with the projects.

Some Shifang residents welcomed the government's backdown, but others expressed caution that the announcement was not genuine and only aimed at ending the protests.

"I think... that because there are too many mass protests, they just want to use this method to get rid of the crowds," one resident, who asked not to be identified, told AFP.

"I personally think (the factory will be built), but I don't know for sure."

However, another resident expressed relief and said she believed the government.

"We are very happy to hear the announcement that they will not build the plant any more," she said.

Adding to the uncertainty, an official with the company that was to build the factory, Shanghai-listed Sichuan Hongda, said it had not been officially informed that the plant had been scrapped.

"Our company has not received the official document from the government that the... project will not be built," the official, who gave only his surname Lin, told AFP.

Lin also insisted the environmental fears of the local community were unfounded.

"In the project plan, the investment in environmental protection was very high and it would not have a very big impact on the lives of the local people."

Hongda's share price fell 9.24 percent on Wednesday, just shy of the 10-percent daily limit.

In a sign of lingering tensions in Shifang, a few hundred people continued on Wednesday to gather around the main government office where the worst of the protests had occurred, an AFP photographer witnessed.

The people were not calling out, holding banners or protesting in other visible forms, but a heavy police presence stood guard around them.

Elsewhere around the city of about 200,000 people, many police vehicles patrolled the streets, although there were no signs of the riot police that had sought to quell the protests on Monday and Tuesday.

Authorities also said they were still detaining six people for crimes such as smashing public property and overturning cars, as well as throwing flower pots and stones.

Two people were killed in the protests, according to rights watchdog Chinese Human Rights Defenders, although the government denied anyone had died.