Local officials backed by hundreds of police moved into a residential district north of Ho Chi Minh City at daybreak and used bulldozers to begin demolishing houses.
Reports said the police drove out protesting residents and arrested some of those who had organised resistance to the land clearance.
The simmering confrontation in the area known as Loc Hung vegetable garden came to a head at the end of last week when the authorities moved in to begin demolition work.
They returned in force on Tuesday morning after a weekend of disputes and protest.
The residents include wounded war veterans who served under the Republic of Vietnam until its defeat in 1975 and the families of Catholics who moved from North Vietnam after the division of the country two decades earlier.
The families have lived and farmed vegetables on the land ever since, with many of the plots donated by the Catholic Church.
Residents claim the authorities have not followed their own rules and regulations regarding land repossessions and have not offerered adequate compensation.
Many say they will be left homeless and destitute after their homes are demolished.
Local people reported on Facebook that the authorities broadcast warning messages through loud speakers through the night, ordering residents to get out before the bulldozers arrived.
Streets leading to the district have been blocked by police since last Friday and reports say that priests from the Redemptorist Church in Ho Chi Minh Minh City were prevented from going to the scene to offer support.
Witnesses said that many residents were panicked into a forced evacuation during the night, desperately trying to salvage their belongings before the demolition began.