The military-backed interim Egyptian government has declared the Muslim Brotherhood a terrorist group after blaming it for a deadly attack on a police HQ earlier this week.
The group, whose candidate Mohammed Morsi won the presidential poll last year before being deposed by the military, had already been outlawed.
Thousands of its supporters have been arrested in a crackdown.
A Muslim Brotherhood leader vowed that protests would continue.
Deputy Prime Minister Hossam Eissa announced the move, which will give the authorities more power to crack down on the Brotherhood.
He said that those who belonged to the group, financed it or promoted its activities would face punishment.
The decision was in response to Tuesday's suicide bombing of a police headquarters in Mansoura, in the Nile Delta, which killed 16 people and wounded more than 100, he said.
"Egypt was horrified from north to south by the hideous crime committed by the Muslim Brotherhood group," Mr Eissa said.
"This was in context of dangerous escalation to violence against Egypt and Egyptians and a clear declaration by the Muslim Brotherhood group that it still knows nothing but violence.
"It's not possible for Egypt the state nor Egypt the people to submit to the Muslim Brotherhood terrorism."
Egypt would notify Arab countries who had signed a 1998 anti-terrorism treaty of the decision, he added.
The Brotherhood has denied being responsible for the attack, and an al-Qaeda inspired group has claimed responsibility.
Ibrahim Munir, a member of the group's guidance council in London, told AFP news agency that the government's decision was "illegitimate".
He added: "The protests will continue, certainly."
Brotherhood supporters have staged protests since Mr Morsi's government - the first to be democratically elected in Egypt - was toppled on 3 July following widespread anti-Brotherhood demonstrations.
The 85-year-old Islamist movement was banned by Egypt's military rulers in 1954, but registered an NGO called the Muslim Brotherhood Association in March this year in response to a court case bought by opponents who contested its legal status.
The Brotherhood also has a political wing, the Freedom and Justice Party (FJP), which was set up in 2011 as a "non-theocratic" group after the uprising that forced President Hosni Mubarak from power.
Following Mr Morsi's overthrow and the suspension of the Islamist-friendly 2012 constitution, the Cairo administrative court and the social solidarity ministry were tasked with reviewing the Brotherhood's legal status.
In September, a ruling by the Cairo Court for Urgent Matters banned the Brotherhood itself, the NGO, as well as "any institution derived from or belonging to the Brotherhood" or "receiving financial support from it".