SANTIAGO (Reuters) - Hundreds of public workers in Chile clashed with police outside the nation's presidential palace in Santiago on Thursday, a day after Congress approved a relatively small 2017 wage hike for government workers.

The protesters, many shouting and waving banners, came within feet of the main entrance to the president's residence, leading police to shut the building down.

After a tussling with the workers in a large plaza in front of the building, riot police managed to disperse the crowd with water cannon and tear-inducing gases.

"This is absolutely reasonable, people are frustrated, they feel powerless because of the miserable wage adjustment that was approved," Esteban Maturana, president of the Confusam workers' union, said in remarks broadcast on CNN Chile.

"What's happening is an expression of people that are fed up."

Chile's Congress on Wednesday approved a 3.2 percent salary hike for the public sector, roughly in line with inflation, and below the 4 percent hike that workers had demanded.

In September, President Michelle Bachelet said Chile's budgeted spending will rise only 2.7 percent in 2017, as the public finances of the South American nation have been pressed by low prices for copper, by far its most important export.

There have been other protests in Chile in the past few weeks from citizens who complain that the public pension system, launched in the 1980s during the dictatorship of Augusto Pinochet, is insufficiently generous.

(Reporting by Gram Slattery; editing by Grant McCool)