The troops and tanks entered Plaza Murillo, a historic square where the presidency and Congress are situated, in the afternoon, prompting global condemnation of an attack on democracy.
One of the tanks tried to break down a metal door of the presidential palace.
Surrounded by soldiers and eight tanks, the now-dismissed army chief General Juan Jose Zuniga said the "armed forces intend to restructure democracy, to make it a true democracy and not one run by the same few people for 30, 40 years."
AFP reporters saw soldiers and tanks pulling back from the square shortly after. The uprising lasted about five hours.
Zuniga was captured and forced into a police car as he addressed reporters outside a military barracks later on Wednesday, footage on state television showed.
"General, you are under arrest," Deputy Interior Minister Jhonny Aguilera told Zuniga.
A second senior military officer Juan Arnez Salvador, who was head of the Bolivian navy, was also arrested Wednesday night.
Salvador's arrest was announced by Interior Minister Eduardo del Castillo, who said that Zuniga and Arnez are "two military coup leaders who tried to destroy democracy and the institutionality of our country and failed."
Speaking from a balcony of the government palace, Arce told hundreds of supporters that "No one can take away the democracy we have won."
He had urged "the Bolivian people to organize and mobilize against the coup d'etat in favor of democracy," in an earlier televised message to the country alongside his ministers inside the presidential palace.
He fired Zuniga and Salvador and swore in a new set of military leaders.
Before he was arrested, Zuniga told reporters that the president had told him to stage an uprising, in order to trigger a crackdown that would make him look strong and boost his sagging approval rating.
At a meeting Sunday, the general said, Zuniga asked Arce "so we bring out armored vehicles?" He said the president answered, "bring them out."
Arce's instructions were to "stage something to raise his popularity," Zuniga said.
Former president Evo Morales wrote on social media platform X that "a coup d'etat is brewing" and urged a "national mobilization to defend democracy."
- Zuniga's anti-democratic remarks -
Bolivia is deeply polarized after years of political instability and the ruling Movement Towards Socialism (MAS) party is riven by internal conflict between supporters of Arce and his former mentor Morales.
Morales, who was Bolivia's first Indigenous president, was extremely popular until he tried to bypass the constitution and seek a fourth term in office in 2019.
The leftist and former coca union leader won that vote but was forced to resign amid deadly protests over alleged election fraud, and fled the country.
He returned after Arce won the presidency in October 2020.
Since then a power struggle has grown between the two men, and Morales has increasingly criticized the government and accused it of corruption, tolerating drug trafficking, and sidelining him politically.
Six months ago, the Constitutional Court disqualified Morales from the 2025 elections, however he is still seeking nomination as the MAS candidate.
Arce has not said whether he will seek re-election.
Zuniga appeared on television on Monday and said he would arrest Morales if he insisted on running for office again in 2025.
"Legally he is disqualified, that man cannot be president of this country again," he said.
Since that interview, rumors have swirled that Zuniga was on the verge of being dismissed.
- Calls for calm -
The US administration of Joe Biden said it was keeping a close eye on events in Bolivia and "calls for calm," according to a spokesperson for the National Security Council.
United Nations Secretary-General Antonio Guterres was "deeply concerned" by events in Bolivia and called on all actors, including the military, to "protect the constitutional order and to preserve a climate of peace", his spokesman Stephane Dujarric said in a statement.
Condemnations of the troop movements also poured in from across Latin America, with leaders of Chile, Ecuador, Peru, Mexico, Colombia and Venezuela calling for democracy to be respected.
Brazil's President Luiz Inacio Lula da Silva wrote on X: "I am a lover of democracy and I want it to prevail throughout Latin America. We condemn any form of coup d'etat in Bolivia."
The Organization of American States (OAS) said the international community would "not tolerate any form of breach of the legitimate constitutional order in Bolivia."
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