Aftabjit Singh, 38, pulled out the gun after another person allegedly threatened his "significant other", police said.
One man was taken into custody and multiple people sustained minor injuries after a report of a man with a gun at the Capital Pride parade in Washington, D.C. "But there is NO ACTIVE SHOOTER at Dupont Circle", he wrote.
"You just heard people scream and they just started booking it", Tom Roussey said.
Washington Deputy Mayor Kevin Donahue had earlier said on Twitter that people in the city's Dupont Circle were injured "running from what they thought were gunshots" but that there was no active shooter.
Both police and D.C. Mayor Muriel Bowser released statements shortly after the incident saying there was no evidence to indicate a gun was sacked.
Although no shots were fired, hundreds of people ran from the area, knocking down metal police barricades and running into stores, fearing a gunman had opened fire on the revellers. "Some of the individuals in the crowd said that there was a man with a gun and that someone had fired shots".
A man was arrested for waving a handgun during the Capital Pride Parade in Washington DC - sparking a stampede that left several people in the hospital, according to cops.
Mayor Muriel Bowser confirmed that no shots had been fired.
"Everything fell and everyone said: 'Run!,'" said Hernandez of Falls Church, Virginia.
Organisers chose to shut down the parade for the night but said they would not allow the scare to ruin the pride celebrations. The group that organizes the event said it spends extensive time planning security procedures.
The police report says officers made contact with Duffy, whom the report lists as Suspect 1, due to her significant other being arrested.
Guillermo Rivera, a commander with the Metropolitan Police Department, said the department had an "adequate amount of resources on the ground, which is why we were able to respond so quickly".