800 homes close to the border are set to be demolished in the project, which Egypt says is designed to halt militants from crossing the border.
A 500-metre wide buffer zone is already being built along a 10 kilometre (6 mile) stretch of the border, while work to double the area of the buffer zone would begin next week, the regional governor Abdel Fattah Harhur told AFP news agency.
Hahur said that families whose homes are in the construction zone have been told to evacuate the area, and that they would either receive alternative housing or financial compensation.
The buffer zone project comes after a massive suicide bombing at a checkpoint close to the Gaza border in October that killed 30 Egyptian soldiers.