The police pulled back about 50km from Halal Mountain in northeast Sinai "to reassess the situation" after Thursday's explosion, a security official said in Cairo.
A security official in the northern Sinai town of el-Arish on Friday said the withdrawal took place because "the area is being cleared of land mines".
Both officials spoke on condition of anonymity as they were not authorised to release the information.
An Interior Ministry official insisted the pullback was only temporary.
"The sweep and siege are still on. There is no retreat," the ministry official said, referring to the week-long search being carried out by about 4000 police backed by 35 armoured vehicles in northern Sinai.
"The regrouping is part of tactics that I won't reveal," he said. He spoke on condition of anonymity as the ministry had not yet issued a statement on the matter.
"We're chasing dangerous and desperate people, so losses are expected," he added.
The police mounted the operation to chase suspects allegedly involved in last month's bomb attacks in the southern Sinai resort of Sharm al-Shaik, where at least 64 people were killed, and the October bombings in Taba and another east Sinai resort, which killed 34 people.
Egypt has detained about 650
poeple since Sunday
At least 650 people have been detained since Sunday.
On Friday nearly 1000 mourners, including Interior Minister Habib el-Adly, attended the funeral in Cairo of Major General Mahmoud Adel and Lieutenant Colonel Omar Abdel Moneim, who were killed by the land mine on Halal Mountain on Thursday.
Sinai's rugged mountains and their caves have traditionally been havens for criminals and fugitives involved in smuggling and drug trafficking.