The barracks are just 100 meters from Bolivia's presidential palace.
The protesters were demanding salaries on par with soldiers and a pension equal to 100 percent of their salaries. Bolivian police earn about $144 a month and were not appeased by a 7 percent government-decreed wage increase this year.
The mutiny broke out after wives of the police participants were thrown out of the barracks by the men's superiors.
A tear-gas grenade exploded in the tumult, but La Paz was peaceful, with families strolling around downtown enjoying a national holiday.
A spokesman for the mutineers, patrolman Edgar Ramos, said an additional 500 police across the capital had joined the protest by similarly occupying other barracks.
That claim could not be independently verified and police headquarters did not address it, saying it would issue a statement later.
A February 2003 revolt over wages at the same barracks led to a gunfight with soldiers in which 19 people were killed, mostly police.
Bolivia has 33,000 police and their institution is considered be among the country's most corrupt. It has had seven commanders in the past six years.
President Evo Morales was out of the country Thursday in Brazil for the Rio+20 environmental summit.
Morales is closer to the military than to the police.