The chairwoman of the US House committee that oversees foreign aid is blocking $450m in assistance to Egypt.
Representative Kay Granger, a Republican, said on Friday that the State Department had notified Congress of plans to transfer the money to the new government of President Mohamed Morsi, a move that Granger said she would stop.
"This proposal comes to Congress at a point when the US-Egypt relationship has never been under more scrutiny, and rightly so," the chairwoman of the Appropriations subcommittee on foreign operations said in a statement.
"I am not convinced of the urgent need for this assistance and I cannot support it at this time ... I have placed a hold on these funds."
Granger's action reflects unease among some US politicians over the new government that has taken the reins in
Egypt after a pro-democracy uprising overthrew longtime US ally Hosni Mubarak last year.
The relationship between the US and Egypt has been rocky since the revolution. Egypt's government also angered Washington when it cracked down on numerous democracy advocates and groups, including three US-funded non-governmental organisations, earlier this year.
More recently, demonstrators breached the US embassy in Cairo to protest an anti-Islam video, and some in Congress have called for cutting off aid.
The Obama administration has nevertheless vowed to push forward with its aid package for Cairo, a point reinforced by Secretary of State Hillary Clinton this week when she met Morsi on the sidelines of the UN General Assembly meeting in New York.
The US provides Egypt with $1.55bn annually - $250m in economic aid and $1.3bn in military aid. The cash transfer came from money that had already been appropriated.
The Obama administration has argued that it is essential to buttress Egypt, the most populous Arab country and the first to sign a peace agreement with US ally Israel.
Egypt has requested a $4.8bn loan from the International Monetary Fund (IMF), a move the US supports. Other countries are slowly making good on promises of assistance.
Saudi Arabia in June transferred $1.5bn as direct budget support, approved $430m in project aid and pledged a $750m credit line to import oil products. Qatar has also promised $2bn in support.
A senior State Department official said the US remains committed to a democratic transition in Egypt and still sees support for economic growth as a vital way to protect peace and security.
The official, speaking anonymously to the Associated Press, said the administration would work with Congress in the next days and weeks to make the case that the budget is in US interests.
Last December, Congress made foreign assistance to Egypt, including the military financing, contingent on a determination that the government "is supporting the transition to civilian government including holding free and fair elections; implementing policies to protect freedom of expression, association, and religion and due process of law".