A Cairo court on Sunday banned Islamic State and declared it a terrorist group.
Islamic State (IS), which controls large swaths of Syria and Iraq, aims to form an Islamic caliphate.
A lawyer filed a suit with the Court for Urgent Matters demanding the group be labelled terrorist.
Although IS does not have a presence in Egypt, Ansar Beit Al-Maqdis, another militant group operating in Sinai, has pledged allegiance to them.
Ansar Beit Al-Maqdis has declared responsibility for a number of terrorist attacks, including an attack on 24 October which left 31 army personnel dead in North Sinai.
Egypt's government cannot declare a group terrorist without a court verdict.
Last Wednesday, the cabinet approved a new anti-terrorism bill.
According to Article 1 of the bill, a terrorist entity is any group which disrupts public order or threatens the safety, security or interests of society, or harms or frightens individuals or threatens their lives, freedoms, rights or security or harms national unity.
The bill gives executive authorities the right to dissolve any groups listed as terrorist entities and freeze their assets and money and arrest their members.
Egypt has declared a number of groups terrorist organisations in the past year, including Ansar Beit Al-Maqdis, the Muslim Brotherhood, from which ousted Mohamed Morsi hails, and Agnad Misr, which has claimed responsibility for a number of terrorist acts, including a bombing near Cairo University, shootings of police officers and two bombings against police targets in Giza.
The military has been combating a decade-long jihadist insurgency in Sinai, with attacks increasing over the past year. Hundreds of soldiers and police have been killed, while the army says it has killed and arrested hundreds of jihadists. Civilians have also been caught in the violence.