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Around 50 anti-riot police were sent to the brash Oura strip in the resort after ugly scenes sparked by a bar fight during a party at which all the guests dressed in white.
GNR officers had to fire at least twice into the air to quell unrest before making four arrests.
Two policemen and two Britons were injured in the violence, which happened during a seven-day festival called Portugal Invasion catering mainly for black Britons which is due to end today.
Yesterday British holidaymakers caught up in the violence accused the police of overreacting, although local business owners said some of the estimated 1,000 tourists believed to have travelled to Portugal for the festival had acted disgracefully during their stay in the resort.
An eye-witness to the trouble which started at the bar called Liberto’s Bar, a 21-year-old woman from London known only as Chelsea, told Portuguese media: “Police came in and then the police and the boys started fighting.
“The police officers started hitting people with batons. They were beating up girls and then started shooting and everyone scattered.
“It was madness. The police beat up innocent people who weren’t doing anything. I’ve got a friend whose leg is broken.
“There were about 600 of us. We came on holiday to enjoy ourselves ourselves and enjoy Portugal and it hasn’t been nice.
“Taxi drivers don’t want to take us home. When we call up no-one wants to pick up our call.
“We’re just here to have fun, we’re not here to cause trouble. The police officers were too aggressive. What they did was too much. It was not nice. It was too forceful.”
The violence broke out late on Sunday night.
One British holidaymaker was taking a selfie video of herself on her mobile phone when she was stunned into silence by gunshots.
Motioning to groups of people behind her after the riot police had turned up, she said: “Back here we have the battlefields of Portugal. Everyone’s fighting. Gunshots, thank you very much” before screaming as the first gunshot rang out.
But British expat Becci Rich slammed the holidaymakers as animals.
She took to Twitter to rage: “Thank you for sending these thugs to our lovely town in Albufeira, destroyed bars, rude to businesses, fake money.”
Liberto Mealha, the owner of Kiss Disco and Liberto’s Bar where the trouble kicked off, told Portuguese TV station SIC: “What happened last night and over the past few days is that a group of around 1,000 British tourists, staying mainly at Clube Praia da Oura, have caused a lot of problems in the area, including thefts in supermarkets and souvenir shops and damage to some rented scooters which they were driving without helmet or the proper licences.
“It’s very hard to control this situation at night-time. When there are conflicts between them, all we can do is call the authorities which is what we did last night/on Sunday night.
“We had around 200 of these tourists in our bar and at one point a fight started between them. We called the police and the confusion spilled out onto the streets.
“We have our own security staff who stepped in to do what they could but with such a big number the situation became uncontrollable.
“Someone told me shots were fired in the air. It think it was an attempt at intimidating people so police could try to control the situation.”