The Libyan embassy in Cairo announced on Saturday that it had suspended operations indefinitely.
The move comes days after demonstrators burned a Libyan flag at its gate to protest the death of an Egyptian Coptic Christian imprisoned in the North African country.
Tensions between the two countries have flared since the arrest of Ezzat Atallah, who died in Libyan custody after being detained on suspicion of attempting to convert locals in the Muslim nation. His family claim he was tortured to death.
Two other detainees, who are among an estimated 50 Egyptian Christians accused of proselytizing and detained in Libya, told The Associated Press after their release that they were tortured in a detention center run by a militia in eastern Libya.
Egypt's foreign ministry reportedly said that its embassy in Libya was investigating the allegations of torture.
Saturday's decision will affect thousands of Egyptians working in Libya who rely on the embassy for permits.
Meanwhile on Saturday, Egypt's main opposition group, the National Salvation Front, issued a statement calling on Islamist president, Mohammed Morsi, to do more to defend the rights of Egyptian Christians in Libya, following the deportation of dozens of Egyptians from Libya in recent weeks.
