Egypt's Islamist President Mohammed Morsi on Sunday ordered the surprise retirement of his powerful defence minister and scrapped a constitutional document which handed sweeping powers to the military.

Field Marshal Hussein Tantawi, who ruled Egypt for more than a year after the revolution that toppled former president Hosni Mubarak, was replaced by Abdel Fattah al-Sissi.

Armed forces chief of staff Sami Anan was also retired, a week after a deadly attack on the Egyptian military in Sinai prompted an unprecedented military campaign in the lawless peninsula, the state broadcaster said.

Morsi also decided to scrap a key constitutional document which gave the military legislative powers and other prerogatives, his spokesman Yasser Ali said.

"The president has decided to annul the constitutional declaration adopted on June 17" by the Supreme Council of the Armed Forces, Ali said in a statement broadcast on state television.

"Given the circumstances, this is the right time to make changes in the military institution," said Mourad Ali, a senior official with the Freedom and Justice Party which fielded Morsi in the May to July presidential election.

"He is a strong president, and he is exercising his authority," Mourad Ali said of the surprise decision that tested the balance of power between the first civilian president in Egypt's history and the powerful army.

In another move Morsi, an Islamist who rose the ranks of the Muslim Brotherhood before his election in June, also decided to appoint a vice president.

Morsi appointed judge Mahmud Mekki as his deputy, the official news agency MENA reported, making him only the second vice president to be named in Egypt in 30 years.

Mubarak, who was ousted in a popular uprising last year, named his spy chief Omar Suleiman as vice president just days before he was forced to step down.

Sunday's decisions were the latest in a series of shake-up by Morsi in recent days after a deadly attack on troops in the Sinai peninsula.

On Wednesday the president ordered spy chief Muraf Muwafi to retire in a shuffle of military and intelligence ranks after last weekend's attack that killed 16 soldiers in the Sinai, near the borders of Israel and the Gaza Strip.

And he also retired the governor of North Sinai to Abdel Wahab Mabruk while the head of military police, Hamdi Badeen, was replaced because he failed to secure the funeral for the slain soldiers, with some protesters trying to assault Prime Minister Hisham Qandil.

Ties between Islamists and the military have been strained in Egypt over the past months.

Islamists scored a crushing victory in Egyptian parliamentary elections that were held in three-stages from November last year, with the Muslim Brotherhood, heading the lower house.

But the military dissolved parliament in May after the Supreme Constitutional Court ruled that certain articles in the law governing parliamentary elections were invalid, annulling the Islamist-led house.

On Wednesday Morsi sacked his spy chief and two senior army generals, as well as North Sinai's governor, in a shakeup up military ranks after last weekend's deadly ambush.