The Egyptian army on Wednesday began demolishing houses along its border with the Gaza Strip.
Egyptian authorities said in Al-Arish that the demolition was in accordance with the planned 300-metre wide buffer zone.
They said more than 1,200 families are being evacuated from a total of 670 houses in order to clear the area.
North Sinai provincial Governor Abdel-Fattah Harhur said that most of the houses would be demolished by the end of Wednesday.
He said all the evacuated residents would be given compensation payments as soon as they signed papers acknowledging the surrender of their houses.
Harhur said the payments had been set at 168 dollars per meter, which was seen as generous relative to local property prices.
Egyptian authorities say they are determined to clamp down on smuggling tunnels between Sinai and the Palestinian Gaza Strip.
They alleged that Palestinian militants had used the tunnels to carry out operations on Egyptian soil.
The tunnels have provided a lifeline to the Palestinian enclave, subject to a seven-year long Israeli blockade.
Palestinian and Israeli negotiators were due to discuss lifting the blockade and establishing a long-term truce in Egyptian-brokered talks this month, but Egypt reportedly postponed the negotiations after the latest attack in Sinai.
Jihadist groups based in the rugged desert peninsula have intensified their attacks on security forces since the military deposed Islamist president Mohammed Morsi last year.
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