A security source and members of the campaign staff of former military chief of staff Lieutenant General Sami Anan said he had been detained for questioning following the army's announcement rejecting his decision to run.
The army statement, which appeared in text on state TV and was read aloud by a spokesman, said Anan's presidential bid amounted to "blatant legal violations ... (and) a serious breach of the laws of military service".
He had announced his candidacy "without getting permission from the armed forces ... or taking the steps necessary to terminate his service".
Organisers of the campaign announced that he had called off his bid. They gave no details of his whereabouts following what they described as his detention. The military declined to comment on the report he had been detained. The interior ministry could not immediately be reached for comment.
A witness who knows Anan told Reuters the candidate was driving to his office when his car was stopped by what appeared to be armed military police on a main road in Cairo.
Anan was the final high profile challenger to Sisi left in the race after a number of others dropped out, some citing intimidation by the authorities.
Egypt's president's office and government press centre have not commented on the election race. The electoral commission has said it will ensure the vote is carried out fairly and transparently.
Sisi, a former military chief who led the overthrow of Islamist President Mohamed Mursi in 2013 and was elected president the following year, announced last week he will seek a second term in the election set for late March.
Ahmed Shafik, a former prime minister and air force chief, abandoned a bid this month, saying that after several years living abroad he was out of touch with Egyptian politics. The announcement came amid media criticism and speculation that he was being held by authorities in a Cairo hotel.
Mohamed Anwar al-Sadat, the nephew of assassinated President Anwar al-Sadat, said last week he would not run, citing an environment of fear surrounding the vote.
Rights lawyer Khaled Ali has said he will still run, but he might be disqualified over an ongoing legal case against him.
Anan announced his presidential bid in a video declaration posted on his official Facebook page last week, saying he was running to save Egypt from incorrect policies and calling on state institutions to maintain neutrality toward all candidates.
Egyptian law requires former army officials to end their service and receive permission from the military before they can run for political office. The army's statement said Anan had falsified documents that stated his military service had ended.
Sisi's critics say his popularity has eroded over tough economic reforms tied to a $12 billion International Monetary Fund loan, which have squeezed many Egyptians, and over a crackdown on dissidents.
His supporters say firm measures are necessary to bring security and stability to a country that has seen unrest since a 2011 uprising toppled long-serving autocrat Hosni Mubarak.
Egypt is fighting a stubborn Islamic State insurgency in its North Sinai region. Militants have expanded their attacks to target civilians, especially over the past year.