The U.S. provides $1.5 billion in aid each year to Egypt. While the State Department did not provide a dollar amount of the aid being cut, it amounts to hundreds of millions in mostly military aid. The move had been debated for some time.
State Department spokeswoman Jen Psaki says the U.S. will withhold delivery of certain large-scale military systems as well as cash assistance to the Egyptian government until "credible progress" is made toward an inclusive government set up through free and fair elections.
The U.S. will continue to provide health and education assistance and money to help Egypt secure its borders, counter terrorism and ensure security in the Sinai.
Since the military ousted President Mohammed Morsi from power in July, hundreds of people have died in political violence. Last Sunday, 59 people were killed. In the last three months, the military-led government has arrested nearly 2,000 people, mainly Morsi supporters.
The United States has consistently urged the Egyptian government to hold elections soon and make democratic reforms. Neither has happened, and the violence has escalated.
The administration is walking a fine line: It does not want to cut off its relationship with the Egyptian military, but it also won't accept the status quo.
The failure to immediately cut off U.S. aid in July was perceived by many in Cairo to signal American acquiescence in the overthrow of Morsi.
"The administration seems to be trying to preserve near-term cooperation while figuring out the long-term trajectory of Egypt," said former State Department official Tamara Wittes, currently with the Saban Center for Middle East Policy at Brookings Institution.
Wittes warned that, without a clear articulation of a shift in U.S. policy, this could be received the same way.
In his U.N. address two weeks ago, President Obama acknowledged the importance of the U.S. relationship with Egypt, but he said the future of U.S. aid was in question.
"The United States will maintain a constructive relationship with the interim government that promotes core interests like the Camp David Accords and counterterrorism," he said. "But we have not proceeded with the delivery of certain military systems, and our support will depend upon Egypt's progress in pursuing a democratic path."