Raphael Moussa, 46, died instantly when a man shot him in the head as he was standing next to his car in El-Arish, the capital of North Sinai, said Boulos Halim, a church spokesman.
The Islamic State group's Egypt branch claimed responsibility for the murder in a statement posted on social media, accusing him of "combating Islam".
Moussa had earlier left a church where he attended mass, Halim said.
The interior ministry said the priest was gunned down after having gone to an area of El-Arish with mechanics to have his car repaired.
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It has kept up the attacks, mostly roadside bombings and ambushes, despite a massive military campaign to uproot jihadists from the peninsula bordering Israel and the Palestinian Gaza Strip.
Moussa was not the first priest killed in Arish.
Mina Aboud, a fellow priest, was shot dead on July 6, 2013, three days after the military toppled Egypt's Islamist president Mohamed Morsi, unleashing clashes and a crackdown on his supporters.
Pro-Islamists attacked and torched dozens of churches and Christian properties a month later, after police killed hundreds of Morsi supporters in Cairo clashes.
Leading Muslim clerics, as well as the opposition and the Coptic Orthodox Church, supported his overthrow after a year of divisive rule.
Apart from Christians and security forces, Jihadists in Sinai have also targeted Muslims they accuse of working with the government.
They have likewise attacked foreign tourists and beheaded a Croatian oil worker after abducting him near Cairo.
IS claimed responsibility for last October's bombing of a Russian airliner carrying holidaymakers from a resort in southern Sinai, killing all 224 people on board.