Smugglers killed 21 soldiers in an attack on a military checkpoint in New Valley's Farafra Oasis on Saturday evening, an Armed Forces statement said.
The statement described the attack, which occurred near the Egyptian-Libyan borders, as "terrorist".
Three gunmen were killed and four other soldiers were injured in the attack in which heavy weapons and rocket-propelled grenades were used, the state-run news agency MENA said.
An exchange of fire between the soldiers and the smugglers caused an ammunition warehouse to explode after a rocket-propelled grenade hit it.
Some extremists might be involved in the attack, a source at the military prosecution said.
The incident is the second of its kind in the past three months as the same area was previously attacked by smugglers.
Military reinforcements were sent to the site of the attack and the prosecution ordered the transfer of the victims' bodies back to Cairo in a military aircraft.
