The rally was organized by Bersih, a coalition of nongovernment organizations that want to reform and clean up Malaysia's electoral process.
Bersih means "clean" in Malay, and Saturday's rally was the fifth phase of street protests the group has undertaken. Bersih supporters wear yellow T-shirts.
A statement from the Prime Minister's office dismissed the protest as the rantings of a politically ineffective and anti-democratic opposition movement.
While Malaysians have the right to assemble peacefully, the "right is not absolute," and authorities could take actions to ensure public safety, the statement said.
"It is unlawful for any parties to try to unseat a democratically elected government via street protests," it said. "They should play by the rules of our democracy and wait until the next election so that the majority of Malaysians can again choose their government via the ballot box."
Public dissatisfaction with Najib has grown, especially after news broke over alleged financial mismanagement of a government-run fund called 1Malaysia Development Berhad, or 1MDB. 1MDB was formed in 2009 to invest in property, infrastructure and energy projects.
As much as $4 billion could have been "misappropriated" from the Malaysian government, the Swiss attorney general's office
said in January.
Saturday's gathering was peaceful, and monsoon rains eventually disbursed the crowd.
The last Bersih protests were in August 2015. They ran for two days
and also called for Najib's resignation.
Former leader joins protesters
Former Malaysian leader Mahathir Mohamad attended the mass rally Saturday after coming out in support of the protests in a video posted to YouTube
"I hope all Malaysians will give their full support and take part in this Bersih protest," he said in the video, while donning a yellow "Bersih 5" T-shirt.
Many Malaysians were surprised to see Mahathir backing the protests after his own government's clampdown on the Reformasi movement in the late 1990s.
Mahathir was Malaysia's Prime Minister from 1981 to 2003 and oversaw a brutal repression of opposition protests during his time in power.
In this week's video, the former leader said Malaysia was in a "state of emergency," adding Najib's government had racked up debts that the country would not be able to repay.
'We need a clean election'
Malaysian Twitter lit up with the Bersih march as the hashtag #Bersih5 trended across Kuala Lumpur.
A woman named Fida from Shah Alam said she wanted to see the Prime Minister resign. "We need a clean election," she told CNN.
Before Saturday's rally, Wong Chin Huat, a fellow at the Penang Institute, a think tank, told CNN that the demonstration was unlikely to have any immediate impact, but more likely be an "important incremental part of creating" an anti-Najib social coalition.
"Bersih will play a role as a platform for forces demanding change," he said.