Egyptian security officials said the tunnel began in the bedroom cupboard of a Egyptian of Palestinian origin who lives in northeast Sinai.
The tunnel ran 700 meters and emerged in the Gaza house of one of his relatives, the officials in this north Sinai town quoted the man as telling his interrogators.
The officials identified the man as Raed Seif Barhoum and said he had finished the tunnel last month.
Barhoum, who is under arrest, has confessed to using the tunnel to smuggle weapons and explosives into Gaza, the officials said, speaking on condition of anonymity as they were not authorized to talk to the press.
Security officials confiscated USD 13,000 and some automatic rifles from his house.
Police also arrested an alleged partner of Barhoum, who was found with 200 kilograms of TNT, the officials said.
After long rejecting Israel's allegations that it was not doing enough to stop weapons smuggling, Egypt recently said it would make a greater effort to crack down on the trafficking.
Egypt is concerned that Palestinian gunmen violence in Gaza could spill over to Sinai, where the Cairo government has its own problem with Islamic extremists.
The security officials said the tunnel would be destroyed soon, either by flooding it with water or by blowing it up.