US president Barack Obama has cancelled the biannual Bright Star joint military exercise with Egypt in the first concrete action against the military-backed regime's murderous crackdown on pro-Morsi supporters.

Speaking from Martha's Vineyard where he was on holiday with his family, Obama said: "[America] cannot determine the future of Egypt and it does not take sides with any particular side or political figure."

He acknowledged the decades-long relationship between US and Egypt but called on the interim government to exercise restraint while urging protesters to act peacefully.

"We strongly condemn the steps that have been taken by Egypt's interim government," Obama said. "America wants to be a partner in the Egyptian people's pursuit of a better future."

"We want to sustain our relationship with Egypt but our traditional cooperation cannot continue with Egypt as usual.

"The Egyptian people deserve better than what we've seen over the last few days," Obama remarked.