The Obama administration is poised to slash hundreds of millions of dollars in military and economic assistance to Egypt, US officials have said. An announcement is expected this week.

The US has been considering such a move since the Egyptian military removed the country's first democratically elected leader in June. It would be a dramatic shift for the Obama administration, which has declined to label President Mohamed Morsi's ousting a coup and has argued it is in US national security interests to keep aid flowing.

The decision is likely to have profound implications for relations between the US and Egypt after decades of close ties that have served as a bulwark of security and stability in the Middle East.

The US officials spoke on condition of anonymity because they were not authorised to talk publicly before the administration's official announcement.

President Obama's top national security aides recommended the aid cutoff in late August – a policy shift Obama had been expected to announce last month. But the announcement got sidetracked by the debate over whether to launch military strikes against Syria.

The US provides Egypt with $1.5bn (£940m) a year in aid, $1.3bn of which is military assistance; the rest is economic. Some of the aid goes to the government and some to other groups but it is only the money that goes to the government that would be suspended.

Officials told the Associated Press in September that the recommendation calls for a significant amount of aid to be withheld but this payment could be restored once a democratically elected government is returned. The exact sum to be suspended is the president's decision to make.

On Tuesday, the National Security Council spokeswoman, Caitlin Hayden, denied reports that the US was halting all military assistance to Egypt. "We will announce the future of our assistance relationship with Egypt in the coming days, but as the president made clear at (the United Nations general assembly), that assistance relationship will continue," she said.

In his speech at the UN last month, Obama said the US would continue to offer to support to Egypt in areas such as education. But he said the US had held up the delivery of certain military aid and added that future support "will depend upon Egypt's progress in pursuing a democratic path".

Any suspension of assistance to Egypt would follow months of internal deliberation over how to respond to Morsi's ousting, with the White House struggling to formulate a coherent policy.

The administration determined it was not in the US national interest to determine whether a coup had taken place, as such a designation would have required it to suspend all but humanitarian assistance to Egypt. It did delay the delivery of some fighter planes, but as Egypt's military began a heavy-handed crackdown on Morsi supporters – despite US appeals for restraint – the president's advisers started to consider more robust action. Obama then cancelled a joint military exercise and announced a fresh review of assistance.