Nabil al-Wahsh, a lawyer in the case, said he wanted to prevent the creation of a generation who are "disloyal to Egypt and the Arab world".
The children of such marriages "should not be allowed to perform their military service", he said.
No chance of appeal
The supreme administrative court's decision cannot be challenged.
Last year, a lower court ruled that the interior ministry needed to look into the cases of Egyptian men married to Israeli women, and their children, in order to "take the necessary steps to strip them of their nationality".
The interior and foreign ministries had appealed against the decision, saying the matter should be put before parliament rather than decided by the courts.
"The case has highlighted the divide between the official Egyptian stance on peace with Israel versus the real sentiment on the street of the Arab world's most populous nation," Al Jazeera's Rawya Rageh reported from Cairo, the Egyptian capital.
Egypt signed a peace deal with Israel in 1979, making it the first Arab country to do so.
"Popular sentiment [in Egypt] is primarily determined by the Palestinian situation," our correspondent said.
"And this has given more room to lawsuits filed in Egyptian courts against anything that appears remotely sympathetic to Israel or its citizens.
"It's not clear whether the Egyptian government will indeed enforce the verdict.
"But for now, the verdict has quenched the thirst of many in an increasingly angry population seeking action against Israel."
In 2005, Nasr Farid Wasel, a former grand mufti, issued a religious edict, or fatwa, saying Muslim Egyptians may not marry Israeli nationals, "whether Arab, Muslim, or Christian".
The possibility of a Jewish spouse was not mentioned.
Mohammed Sayyed Tantawi, the late grand sheikh of Cairo's Al-Azhar, Sunni Islam's premier institution and oldest university, had said that while marriage between an Egyptian man and an Israeli woman was not religiously forbidden, the government had the right to strip the man of his citizenship for marrying a woman from "an enemy state".
While there is not formal data on the number of Egyptians married to Israelis, some Egyptian deputies estimate the number to be 15,000.
Several thousand Egyptians who lived in Iraq moved to Israel in search of work after the 1990 Gulf War and married Israeli women.