Egyptian military engineers have blocked 120 tunnels used for smuggling to and from the Gaza Strip since the start of operations in the neighbouring Sinai Pensinsula, security officials said on Saturday.

"Tunnel entrances are being demolished every day and the operation will continue until all underground passageways are shut," one official told AFP.

No less than 12 tunnels were blocked in the past two days on the Egyptian side, the source said, adding that the most of the tunnels lie in a four-kilometre (2.5 mile) stretch of the border.

Until now, the army has not used explosives or water to plug the tunnels, which are also found in residential areas.

Seven homes sitting on top of tunnel exits were levelled and two massive underground passages used to smuggle cars into the Gaza Strip were sealed, security officials said.

The military sent in tanks and soldiers into the lawless peninsula which neighbours both Gaza and Israel after gunmen killed 16 soldiers in an attack on an army outpost on August 5.

Egypt is also searching for 120 wanted militants and believes around 1,600 extremists, including foreigners, are hiding out in the Sinai, the official MENA news agency reported Wednesday.

Militants wounded three Egyptian policemen in the Sinai last week in an ambush of their vehicle with a rocket propelled grenade, a security official said.

The government has long struggled with militancy and smuggling in the region but unrest has worsened since an uprising overthrew veteran strongman Hosni Mubarak in February last year, prompting the collapse of his discredited police force.