Egypt has returned $2 billion that Qatar had deposited with its central bank, after talks to convert the funds into three-year bonds broke down

Egypt has returned $2 billion that Qatar had deposited with its central bank, after talks to convert the funds into three-year bonds broke down, central bank Governor Hisham Ramez said on Thursday.

Egypt authorities have also refused a Qatari request to increase the number of flights between the two states, according to Egyptian airport sources, in a further sign of rising tension between the two Arab Muslim states.

Cairo's relations with Qatar deteriorated after the Egyptian army deposed President Mohammad Mursi on July 3. Qatar had been a firm backer of Mursi's Muslim Brotherhood and lent or gave Egypt $7.5 billion during the year he was in power.

Qatar had sent Egypt $3 billion in May, of which it converted $1 billion into three-year bonds.

Ramez told Reuters in a telephone interview that the Qatari authorities had agreed to convert the entire remaining $2 billion but then changed their minds.

"They wanted to postpone it, then they said they would do it like they announced last time, and then they came back with some amendments, doing part and postponing the other part for a time, which we found not suitable for us," he said.

"So we just repaid the deposit."