The US is suspending a large part of the $1.3bn (£810m) in aid it gives to Egypt’s military.
The delivery of large-scale military systems as well as cash assistance to the Egyptian government would be withheld, said the state department.
It said “credible progress” must be made towards free and fair elections.
A review was launched in August after a crackdown by the authorities on supporters of ousted President Mohammed Morsi left hundreds of people dead.
“We will continue to hold the delivery of certain large-scale military systems and cash assistance to the government pending credible progress toward an inclusive, democratically elected civilian government through free and fair elections,” state department spokeswoman Jen Psaki said.
Egypt’s foreign military backers
- The US: In addition to providing $1.3bn (£810m) it has also trained many senior Egyptian officers in America
- The EU: According to 2011 official EU figures, Europe annually sells about $405m (£254m) worth of weapons to Egypt
- France, Spain and Germany are reported to be the main EU donors
- Other key military donors are believed to beBrazil, Russia and China
- Saudi Arabia, the UAE and Kuwait have all provided cash to Egypt – estimated to be $12bn this year alone – but it is not clear how much of this – if any – was military assistance
Officials said the freeze amounted to hundreds of millions of dollars in aid.
The US is halting the delivery of Apache helicopters, as well as Harpoon missiles and tank parts, officials said.
Washington also plans to halt a $260m cash transfer and a $300m loan guarantee.
The BBC’s Kim Ghattas in Washington says the suspension of aid is more symbolic – a slap on the wrist – than a painful cut in essential aid.
The announcement had been expected, with deliveries of military hardware already halted, a military exercise cancelled, and cash aid in effect on hold since the summer, our correspondent says.
The US will continue to provide health and education assistance, and money to help Egypt to ensure security in the increasingly volatile Sinai peninsula.
The freeze was not intended to be permanent, the state department added.
Morsi on trial
In a speech to the UN General Assembly last month, US President Barack Obama criticised Egypt’s military-backed interim government for “decisions inconsistent with inclusive democracy”.
However, the US has held back from labelling President Morsi’s removal from power a coup.
Since the army ousted Mr Morsi in July, Egyptian authorities have clashed repeatedly with Muslim Brotherhood supporters.
In the latest round of violence, more than 50 people were killed in clashes between Morsi supporters, opponents and security forces in several cities on Sunday.
Thousands of members of the Muslim Brotherhood have also been detained in the past two months.
Hundreds of Egyptian activists held a candlelight vigil in Cairo on Wednesday night to commemorate the deaths of Christian protestors in clashes with the military two years ago.
Twenty-five people were killed in what became known as the Maspero massacre, when soldiers in armoured personnel carriers ran over Christians demonstrating outside the state television building in Maspero Square.
Some participants chanted slogans against the military, but others said the army had saved Christians from the Muslim Brotherhood.
Mr Morsi is set to go on trial on 4 November on charges of inciting murder and violence, state media reported on Wednesday.
The charges relate to the deaths of at least seven people during clashes between opposition protesters and Muslim Brotherhood supporters outside a presidential palace in Cairo last year.
Mr Morsi has been detained at a secret location since being deposed on 3 July.
After he was toppled, Gulf states including Saudi Arabia pledged $12bn (£7.5bn) to Egypt’s military-backed government.