Israeli Finance Minister Yuval Steinitz expressed "great concern" about the suspension, saying it had set "a dangerous precedent which casts a shadow on the peace agreements and the peaceful atmosphere between Egypt and Israel".
Egypt was the first of two Arab countries to sign a peace treaty with Israel, in 1979, followed by Jordan in 1994.
The Egyptian decision was announced in Israel by Ampal-American Israel Corporation, partner in the East Mediterranean Gas Company (EMG), which operates a cross-border pipeline supplying gas to Israel.
Ampal said the Egyptian General Petroleum Corporation and Egyptian Natural Gas Holding Company had told EMG they were "terminating the gas and purchase agreement".
The company gave no reasons for the Egyptian decision but said legal redress was under consideration.
"EMG considers the termination attempt unlawful and in bad faith, and consequently demanded its withdrawal," Ampal said in a written statement.
EGYPTIAN FIRM CONFIRMS DECISION
Mohamed Shoeib, chairman of the Egyptian company EGAS, confirmed the decision, saying the 20-year-old deal with Israel had been terminated on Thursday.
Shoeib told Egypt's Hayat TV that "EGAS ended the deal because the other party didn't fulfill its commitments".