"The theme this year is to fight for equal rights on marriage. Gay people are also tax-paying citizens and we demand the same basic right as any heterosexual couples," said Mu Chuan, one of the organisers of the rally.
The parade saw revellers in flamboyant costumes, big feathered hats and swimming trunks waving placards reading "marriage" and "equal rights".
"Even though marriage is a very personal choice, I think gay people should not be stripped of the right to choose to get married," said Mi Feng, a software programmer from Taipei dressed in white and holding a bridal bouquet.
"I just want to tell the world we have the right to love equally like others," said Kongpaphop Panya, a 30-year-old doctor who came from Thailand with three friends.
Organisers expected a turnout of 50,000 people from as far afield as Europe for the capital's 10th annual gay parade.
Encouraged by US President Barack Obama's support for gay marriage, Taiwanese rights groups have launched a campaign to collect one million signatures for a bill they drafted on the issue that they aim to submit to parliament next year.
Taiwan is one of the most culturally liberal societies in East Asia, and gay and lesbian groups have been urging the government for years to make same-sex unions legal.
Aiming to raise awareness about the issue, some 80 lesbian couples last year took part in Taiwan's biggest same-sex "wedding party", attracting about 1000 friends, relatives and curious onlookers.
In August, two women tied the knot in the island's first same-sex Buddhist "wedding" in a much-publicised event with the blessings of a well-known Buddhist master and 300 Buddhist guests.