The body of Hande Kader, an activist for the LGBT (lesbian, gay, bisexual and transgender) cause, was found in a forest on August 8 after she was killed.
The 22-year-old's burnt body was identified in a morgue by a friend, Turkish media reported.
More than 200 demonstrators carried banners saying "justice for Hande Kader" and "let's fight for our survival" under the supervision of anti-riot police close to the famous Istiklal Avenue near Taksim Square.
"We will not stop until we find those responsible for Hande Kader's murder," Ebru Kiranci, spokeswoman for Istanbul's LGBTI Solidarity Association, said.
Another transgender activist read a statement saying "transgender murders are political" because those responsible advocate a "hetero-normative" and "conservative educational system that does not take us into consideration".
Although police had water cannons, they were not used. Previous LGBT demonstrations have seen the use of water cannon and tear gas againstprotesters.
The murdered sex worker became an iconic figure in the LGBT community after she sat in front of water cannon and anti-riot officers in June last year as authorities tried to ban a gay pride parade in Istanbul.
A lawyer for the LGBT cause, Levent Piskin, told AFP that the penal code made no mention of murder committed out of hate.
"There is no legal recognition and no will on the part of the court" to change this.
No arrests have been made in Kader's case.
Second LGBT death in Turkey
In a report published in March this year, the rights group Transgender Europe said Turkey had the highest rate of trans murders in Europe.
Between January 2008 and December 2015, 41 trans and gender diverse individuals were killed in Turkey compared with the second highest in Italy of 33, the group said.
Kader was the second murder to shock the LGBT community in recent weeks after Syrian refugee Muhammed Wisam Sankari was found mutilated and decapitated on July 25, his friends said.
Homosexuality has been legal in Turkey since 1923 and was also legalised in the Ottoman Empire from the mid-nineteenth century.
But the LGBT community in Turkey often describes the harassment and abuse they face in a largely conservative Muslim society where open displays of same-sex love and being transgender are severely frowned upon.
Authorities in Istanbul banned Gay Pride in June this year over security concerns, sparking anger from gay rights activists. In previous years, Istanbul Pride had been the biggest LGBTI gathering in a Muslim country in the region.
