Xi's visit this week comes at a time when fears are growing that Beijing is tightening its grip on semi-autonomous Hong Kong.
High-profile student activist Joshua Wong was among more than 20 demonstrators who encircled the sculpture of a golden bauhinia flower which became the emblem of Hong Kong in 1997.
Wong was detained by police after the anti-China protest.
The statue was given to the city by China as a present to mark the handover.
Some activists chained themselves to the sculpture while others climbed into its petals.
Pro-democracy lawmakers Nathan Law and Leung Kwok-hung, also known as Long Hair, were among the protesters sitting at its base as police cordoned off the square, which is a popular tourist attraction.
Xi is due to land in Hong Kong on Thursday for a three-day visit to attend anniversary celebrations and swear in the city's new leader Carrie Lam.
The city is ruled under a "one country, two systems" deal, enshrined in the handover agreement, which allows it rights unseen on the mainland, including freedom of speech and an independent judiciary.
But there are concerns that China is increasingly interfering in a range of areas, from politics to education and the media.
Protesters at the bauhinia statue chanted "Long live the Umbrella Movement!" and "I'm a Hong Konger!"
The Umbrella Movement was the name given to mass rallies in 2014 calling for democratic reforms. Wong and Law were among the student leaders of those protests, which ultimately failed to win concessions.
Activists on Wednesday also called for the release of Chinese dissident Liu Xiaobo who was granted medical parole this week due to late-stage liver cancer but remains in the mainland.
Members of the Demosisto political party and other pro-democracy activists climb up to a giant flower statue bequeathed by Beijing in 1997 (AAP) Source: AAP
The writer and Nobel Peace Prize laureate, now 61, was sentenced to 11 years in prison in 2009 for "subversion" after spearheading a bold petition for democratic reforms.
"Free Liu Xiaobo! Free all political prisoners! Universal suffrage now!" the protesters chanted.
They have pledged to remain overnight at the harbourfront square, which is outside the convention centre where Xi will attend anniversary events and a stone's throw from the hotel he will stay in.
The spot is popular with mainland visitors.
Police cleared tourists from the square shortly after the protesters occupied the statue.
Demonstrators were livestreaming the sit-in and asking others to join them.
Some, including Wong, had already draped the statue with a black flag on Monday during an early morning anti-China protest. It was removed by police.
