Shaikh Ali Gomaa, the Grand Mufti of Egypt and the country's most senior Islamic jurist, issued the religious edict last week.
He ruled that the exhibition of statues in homes is prohibited and based his opinion on the hadith (the sayings of Prophet Muhammad).
Intellectuals and artists argue that the decree represents a setback for art - a mainstay of the multi-billion-dollar tourist industry - and would damage the country's fledgling sculpture industry.
Gomaa did not mention statues in museums or public places, but he condemned sculptors and their work.
Still, some fear that the edict could encourage people to attack the thousands of ancient and pharaonic statues at tourist sites across Egypt.
Gamal al-Ghitani, editor of the literary magazine Akhbar al-Adab, said: "We don't rule out that someone will enter the Karnak temple in Luxor or any other pharaonic temple and blow it up on the basis of the fatwa."
Gomaa had pointed to a passage from the hadith that stated: "Sculptors would be tormented most on Judgment Day." He said the text left no doubt that sculpting the living form was sinful and using statues for decorating homes forbidden.
Gomaa's ruling ran counter to the opinion cited more than 100 years ago by Mohammed Abdu, a respected figure and Egypt's grand mufti at the time, permitting the private display of statues after the practice had been condemned as pagan.
Karnak temple in Luxor is an
important tourist attraction
Ghitani said Abdu's ruling had ended the issue, as it said statues and pictures were not forbidden in Islam, except idols used for worship.
Ezzat al-Qamhawi, a novelist, said Gomaa's ruling would "return Muslims to the dark ages".
Daud Abdul Sayed, a film director, said the ruling "simply ignored the spiritual evolvement of Muslims since the arrival of Islam ... Clearly, it was natural that they forbid statues under early Islam because people worshipped them.
The Taliban in Afghanistan
destroyed a statue of Buddha
"But are there Muslims worshipping statues nearly 15 centuries later?"
Yussef Zidan, director of the manuscript museum at the Bibliotheca Alexandrina, said: "Why would anyone even bring up the issue in a country where there are more than 10 state-owned institutions that teach sculpting and more than 20 others that teach the history of art?"
Ghitani said: "It's time for those placing impediments between Islam and innovation to get out of our lives."
The criticisms of the legal opinion have put religious scholars at odds with artists, who say that such edicts only reinforce claims, particularly in the West, that Islam is against progress.
Some, including Abdul Sayed, compared Gomaa's edict with a similar one issued by the former rulers of Afghanistan, the Taliban, that led to the destruction of statues of the Buddha despite widespread opposition.
Mainstream Muslim scholars, including Egypt's then mufti, Nasr Farid Wasel, and Shaikh Yusuf al-Qaradawi, the leading Qatar-based scholar, all condemned the Taliban's actions in March 2001.
Yusuf al-Qaradawi says statues
are proscribed in Islam
However, Shaikh al-Qaradawi joined Gomaa in ruling that statues used for decoration are prohibited.
"Islam proscribed statues, as long as they symbolise living entities such as human beings and animals," al-Qaradawi says on a website.
"Islam proscribed all that leads to paganism or smells of it, statues of ancient Egyptians included."
The only exception, he said, are children's toys.
Gomaa was appointed as grand mufti by Hosni Mubarak, the Egyptian president. The mufti's legal opinions carry much weight and generally represent the official line.
His legitimacy is often challenged by other Muslims over his affiliation to the government and his edicts are not always followed.
The government can choose to enforce or ignore the ruling and its reaction in the past often depended on public opinion.
The Muslim Brotherhood, Egypt's main political opposition force, dismissed the fatwa.
Issam al-Aryan, a spokesman for the movement, said: "The people are more concerned with corruption. What they would like to see is a fatwa banning the presence of the same people at the helm of the country for 25 years and not against statues."
Previous decrees include a ruling in 2001 by Wasel against the Arab version of Who Wants to be a Millionaire? that was airing on Egyptian television, saying it was forbidden by Islam because it was a form of gambling.
"The people are more concerned with corruption. What they would like to see is a fatwa banning the presence of the same people at the helm of the country for 25 years and not against statues"
The show was eventually cancelled, although it was not clear whether that was because of the ruling.
In another edict in May 2001, Wasel ruled that beauty pageants in which women appear scantily clad in front of panels of male judges are prohibited. The authorities played deaf and Egypt continues to host them.
Wasel issued a ruling against watching solar eclipses and another against bullfights, but refused to support rights activists in their campaign to outlaw female circumcision.