It was the third evening of a tense face-off between red-shirt anti-government protesters and a rival group who took to the streets to taunt the reds and urge the government to crack down.

By 6pm, the atmosphere was tense, even as red shirts gyrated on top of the tyre and spear-sharp bamboo wall they laid across the entrance to their rally area, dancing to one of their many political theme tunes set to a sort of Thai hiphop.

Across the road, around 2,000 'no-colours' protesters – who want the red shirts removed – stood close to dozens of riot police, and beneath hundreds of soldiers watching from the overhead train station.

At around 8pm, several blasts were heard over the street in what, it was later alleged, were M79 grenades launched from the red-shirt area and exploding on the roof of the overhead train station, 600m from the interface and in the heart of Bangkok's banking and finance area.

People screamed and ran, including dozens of journalists already in the area to film and photograph the rival demonstrators, perhaps hoping for a repeat of the previous night's bottle- and stone-throwing exchange between the red shirts and the 'no colours' group.

About an hour later, two more explosions were heard back up at the interface, outside a coffee shop and bank where the 'no colours' group had gathered.

The government later said one person died and 75 were injured by the explosions. This correspondent counted 10 people carried away from the blood-spattered second blast site, including one Australian.

It was a terrifying scene, undermining Thailand's 'Land of Smiles' self-image. Sadly it may not be the last, as divisions are sharpening across the country. Earlier last week, red shirts stopped a train in Khon Kaen, alarmed that it was carrying soldiers destined for Bangkok and a crackdown on the red-shirt rally there. It was a signal that the red shirts could open new fronts in their rural stronghold, if the Bangkok demonstration is crushed.

The red shirts are mainly – though not exclusively – small farmers, with many from Isaan, a vast rice-growing region in the northeast of Thailand. However, the army estimates that 70% of the group now gathered in Bangkok are from the city, showing that red shirts have some appeal outside their perceived socio-economic base and regional stronghold.

It may also be that, six weeks into their protest, many have had to go home to tend to their farms, leaving city-based supporters in the majority.

'No colours' protestors taunt their red counterparts with insults such as 'buffalo', sneering at their rustic origins. Many of the 'no colours' are rehatted 'yellow shirts', who notoriously occupied Bangkok's airport in 2008, helping to bring about the downfall of a red-shirt-linked government.

They see themselves as well-to-do, urbane and educated – though in a telling display of ironic hubris, one misspelled placard sought to denigrate the red shirts as "uneducate people".

Over the weekend, there was talk of a deal, with the red shirts softening their demand that prime minister Abhisit Vejjajiva dissolve the government immediately.

If the prime minister agrees to a 30-day deadline, the red shirts will pack up and let life go back to normal in the Rajaprasong shopping area of the city – a site of Gucci-laden malls and Greek temple-styled five-star hotels now turned into a mile-long makeshift camp complete with rally stage.

However, threats to disperse the red shirts by force still stand, and the government alleges that terrorists lurk among the group. On 10 April, 25 died and hundreds were injured when the army tried to remove the red shirts, right before Songkran, Thailand's Buddhist New Year.

Usually, that festival is marked by a mass water-fight, drinking and partying, with the epicentre along the tourist magnet, Khao San Road. Walking along the area on 12 April, the celebrations were lower-key than usual, with red shirts burning incense and praying at a temporary shrine erected to protesters killed on the previous Saturday night.

Black-clad gunmen em­erged among the red shirts, firing on the army, and killing a well-known colonel who was a former bodyguard to the country's queen, in what looked like a targeted assassination. There is talk that the army is split, with 'watermelon' soldiers (green uniform, red inside) siding with the protestors, with some soldiers perhaps seeking to settle old scores.

It all marks the worst political violence in Bangkok since 1992, when the army fired on student demonstrators. That time, King Bhumibol intervened to mediate a resolution. The leader of the red shirt-linked political party, former prime minister Chavalit Yongchaiyudh, has called for a similar royal-led dialogue this time around.

However, the king is now 82 and hospitalised since late last year. Talk of an imminent succession looms large over the current political acrimony, with anti-red shirts alleging that the movement is a cover for the political ambitions of Thaksin Shinwatra, the former prime minister now exiled due to corruption charges, and who was ousted in a 2006 coup. Thaksin is thought to bankroll the red shirt movement.

One 'no colours' protester, who declined to give his name, said Thaksin "wants to come back and make himself president", implying that he sought to undermine Thailand's constitutional monarchy – explosive charges in a country with harsh lèse-majesté laws.