Egypt's army killed a field commander in Ansar Bayt al-Maqdis, the country's most dangerous Islamist militant group, during clashes on Thursday in the lawless north of the Sinai Peninsula, security sources said.
Mohamed Abu Shatiya, among militants behind the kidnapping of seven Egyptian soldiers in Sinai last year, died during fighting with the army south of Rafah, on the border with Gaza.
Two tonnes of explosives were confiscated from a nearby tunnel connecting Sinai to Gaza during the incident, they said.
Sinai-based Ansar Bayt al-Maqdis has killed hundreds of Egyptian soldiers and police over the last year and beheaded several people in recent weeks, saying they were spies for Israeli intelligence.
The bloodshed suggests the group, which seeks to topple the government, had become more radical.
Egyptian security officials have said Ansar Bayt al-Maqdis has contacts with al Qaeda offshoot Islamic State, now targeted by U.S.-led air strikes in Iraq and Syria after sweeping through border areas and declaring a state.
They have also highlighted what they say are links between militants in both Libya and Egypt and Islamic State, saying Libyan-based Egyptian militants dream of creating an Islamic State-style empire in their homeland.
Islamic State recently urged Egyptian militants to press ahead with attacks on security forces and beheadings. The call is likely to deepen concern over ties between militant groups in the Arab world's most populous nation.
Despite several army operations Egypt's military has struggled to tackle Ansar and other militant groups.
Washington has designated Ansar a terrorist organisation, but said in April it generally maintained a local focus.