President Adly Mansour had initially announced a month-long state of emergency on August 14, when deadly unrest swept Egypt as police dispersed two Islamist protest camps.
"President Adly Mansour decided to extend the state of emergency... by two months," presidential spokesman Ehab Bedawy said in a statement.
The decision was taken in light of "developments and the security situation in the country," he said.
More than 1,000 people were killed on August 14 and the following days after police dispersed two sit-ins in Cairo by ousted Islamist president Mohamed Morsi's supporters.
Islamists at the time lashed out at Christians, accused of supporting the military coup which ousted Morsi, and burned down several dozen churches and Coptic Christian-owned properties.
Violent protests have largely subsided, giving way to militant attacks such as a suspected suicide bombing that targeted the interior minister last week in a failed assassination bid.
The state of emergency grants security forces wide-ranging powers of arrest.
According to a temporary charter adopted by Mansour, the state of emergency can be extended after the three-month period only by referendum.
Barring a months-long interval in the early 1980s and its suspension months after president Hosni Mubarak's overthrow in early 2011, Egypt has been under continuous state of emergency since 1967.
On Thursday, the government agreed a law allowing detentions for a renewable 45-day periods in cases that could lead to death sentences or life in prison, the cabinet said in a statement.
The current law allowed for renewable 15-day detention periods.
In a newspaper interview on Wednesday, interim prime minister Hazem al-Beblawi had said the state of emergency would probably be extended by two months.
"I don't think any reasonable person aware of the situation, which keeps getting worse, would want the state of emergency lifted," he said.
Beblawi did not indicate when the government would lift a night-time curfew imposed on August 14 which has since been gradually shortened.
With much of its senior leadership arrested, Morsi's Muslim Brotherhood movement has lost its ability to rally huge crowds to stage protests demanding his reinstatement.
But the Islamists still organise weekly rallies.
Meanwhile, attacks on security forces have spiked, even as the military conducts its largest operation in years to quell a radical Islamist insurgency in northern Sinai.
On Thursday, a bomb exploded at a natural gas distribution plant west of the Suez Canal city of Ismailiya, security officials said.
The blast damaged gas pipes but did not cause a fire, they said.
In Sinai, militants have attacked soldiers and police daily, and set off two car bombs on Wednesday outside a military intelligence building in the border town of Rafah, killing six.
A little known jihadist group, Jund al-Islam, on Thursday said it carried out the bombings, saying in a statement posted on an Islamist forum the attacks were in retaliation for the military's killing of "unarmed Muslims".
Another militant group in the peninsula, Ansar Beit al-Maqdis, claimed responsibility for a failed assassination attempt against interior minister Mohamed Ibrahim on September 5 and pledged to try again.
It also vowed to target Colonel General Abdel Fattah al-Sisi, the army chief who overthrew Morsi on July 3 and installed Mansour as president.