"A car broke into an army checkpoint in the village of Al-Bars, south of Rafah," the source said.
The explosion was followed by heavy gunfire from dozens of masked militants.
Ambulances rushed into the scene, and the security forces were combing the nearby roads in search of perpetrators.
The sources said the militants belong to Sinai-based Sinai State group, which declared loyalty to the Islamic State (IS) group in 2017.
However, no group has yet claimed responsibility for the attack.
Later in the day, an officer at Egypt's National Security Sector, previously named as state security premise, responsible for investigations on extremist Islamists, was shot dead by unknown militants after Friday prayer in Qalyoubia province, north of the capital.
Egypt faces waves of anti-security attacks led by IS branch in North Sinai, since the army-led ouster of Islamist president Mohamed Morsi in 2013 in response to mass protests against his rule.
The attacks were mainly centered in Sinai Peninsula, but some extended to the capital and Delta cities.
Hundreds of soldiers and police have been killed during the attacks.
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