Dozens of migrants shot dead in central Libya
Witnesses said a dispute broke out between the migrants and Libyan smugglers in Bani Walid, leading to clashes which killed three smugglers on Tuesday.
Relatives of the slain smugglers retaliated the following day by opening fire on the group, killing all 16 Egyptian migrants.
A further 14 migrants from other nationalities, including Syrians, were also killed in the attack.
Libyan authorities and Egyptian officials were working to identify and retrieve the bodies of the Egyptians killed but details of the incident remain unknown, a diplomatic source said.
Egypt's foreign minister Sameh Shoukry accused smugglers operating on both sides of the border of trafficking Egyptian labourers into Libya, the diplomatic source added.
Ahmed Abu Zaid, the spokesperson for Egypt's foreign ministry, said in a statement that the Egyptian embassy had contacted local authorities in Bani Walid and the Presidential Council in Tripoli to further investigate the incident.
The embassy is also in contact with forensic authorities in Libya in order to identify the bodies and arrange for their repatriation to Egypt.
The UN's Libya envoy condemned the incident and called for calm.
"I strongly deplore these terrible killings and call on those with authority on the ground in Bani Walid to ensure that the incidents are investigated and to prevent any further killings," Martin Kobler said.
Thousands of Egyptians work in Libya but the country has turned into a key conduit for migrants seeking to leave the region for Europe and traffickers continue to operate amid Libya's political chaos.
Militias seized parts of the country after Libyan dictator Muammar Gaddafi was ousted and killed in 2011, leaving the country split between two rival governments since 2014.
A new unity government was established in Tripoli earlier this month, following UN-led efforts to stabilise the country amid the increasing threat of Islamic State group and other militants gaining ground in Libya.