Six homes were razed and several owners were beaten when residents went on the rampage in Verulam, north of Durban, yesterday morning.
Armed with an assortment of weapons, the informal dwellers at Redcliff were protesting against the local community policing forum.
They accused its members of running a "kangaroo court".
Three members of the steering committee were taken to hospital.
One, Sibongiseni Dimane had to be rushed to Durban's Addington Hospital in a critical condition.
People armed with knobkerries, pangas and bush knives were still searching for some of the members who had fled their homes later yesterday.
Victoria Nobechu, ward and development committee chairman, said the situation was tense.
She said last month people started complaining about the members of the steering committee and even assaulted some.
"On Sunday, a woman had her finger cut off. Residents became angry. On Monday, the committee was called to respond to the allegations, but only one person, Dimane, showed up," she said.
Nobechu said the situation became tense when a committee member allegedly fired gun shots in the air.
"People ran in all directions. Some attacked the gun owner. Those who were caught were badly assaulted," Nobechu said.
Some residents did not go to work. They burnt houses and attacked committee members.
Police allegedly stood and watched helplessly.
Nobechu said: "Dimane was pulled out of a bus and beaten, and the police just watched. His house was then set alight."
Local councillor, Chocks Arunajallam, blamed the steering committee. He said if they had not abused their power by assaulting residents, people would not have rebelled.
"They took residents for granted, assaulted them and demanded money for no apparent reason. That's not the way to lead people," he said.
Verulam police spokesman, Inspector Mandla Khumalo, also described the situation as tense. He said those who had burnt houses and assaulted committee members would be arrested.
Khumalo said: "We will definitely open cases against them. It is wrong to take the law into their own hands."
In response to claims that police had merely watched while people were assaulting and beating Dimane, Khumalo said they had had to wait for reinforcements because only two vans had been despatched to attend to the riot.