The violence left at least 51 protesters and three security force members dead, officials and witnesses said. The clashes plunged the divided country deeper into crisis amid calls by the Freedom and Justice party, Muslim Brotherhood's political arm, for all-out rebellion against the army.
The carnage outside Cairo's Republican Guard building marked the single biggest death toll since massive protests forced Morsi's government from power, ushering in an interim civilian administration.
Exactly how the violence began is unclear - there are conflicting accounts. The pro-Morsi protesters said the troops attacked their encampment without provocation just after dawn prayers. They said the military fired on hundreds of protesters, including women and children.
On the other hand, the military said it came under heavy assault first by gunmen who killed an army officer and two policemen. The military's account of events left many questions unanswered.
Witnesses outside the protest camp said troops seemed to be moving to clear the days-old sit-in with tear gas when gunfire erupted. One witness said she believed the fire came from the protesters' side, though others could not tell.
The Morsi supporters had been camped out for days at the site in tents around a mosque near the Republican Guard complex, where Morsi was initially held but was later moved to an undisclosed Defense Ministry facility.
The clashes went on for three hours, with protesters hurling stones and molotov cocktails from rooftops and gunshots ringing out. Officials said more than 400 people were wounded.
The violence draws sharper battle lines between Morsi's Muslim Brotherhood, who say the military has carried out a coup against democracy, and their opponents, who claim Morsi squandered his 2012 election victory and was wrecking democracy by bolstering his and the Brotherhood's grip on the state.
Egypt's top Muslim cleric, who backed the removal of Morsi, said he was going into seclusion until the violence ends, a rare show of protest directed at both sides. Sheik Ahmed el-Tayeb, head of Al-Azhar Mosque, demanded a process immediately be set up for reconciliation, including the release of Brotherhood detainees.
After the attack, the Al-Nour party, an ultraconservative Islamist party who had been in talks with the new government about participating in the political process, announced it was withdrawing its support for the transition plan in response to the "massacre."
The military, which removed Morsi on Wednesday after mass protests against him, now may face pressures to impose stricter security measures to try to keep unrest from spilling out of control.
The violence will also further complicate Egypt's relations with Washington and other Western allies, which had supported Morsi as the country's first freely elected leader and now are reassessing policies toward the military-backed group that forced him out.
By the afternoon, the site of the sit-in was cleared. The area where the clashes took place was littered with rocks, shattered class, shoes, clothes, prayer rugs and personal photographs.
Interim President Adly Mansour called for restraint and ordered a judicial inquiry into the killings. Significantly, the statement from his office echoed the military's version of events, noting that the killings followed an attempt to storm the Republican Guard's headquarters.
The Associated Press contributed to this report.