The desert region, popular with tourists, is also a militant hideout. Last month the Egyptian branch of the Islamic State group beheaded a young Croatian there who was working for a French company and have also launched numerous attacks against security forces.
"On the 13th during a joint military police and armed forces operation chasing terrorist elements in Wahat in the Western Desert four pick-up trucks carrying Mexican tourists were mistakenly dealt with," the interior ministry said in a statement.
Read: 4 Americans among 6 peacekeepers wounded in Egypt bombings
"The incident led to the death of 12 and wounding of 10 Mexicans and Egyptians," it said.
"The area they were in was off limits to foreign tourists," it said.
The ministry did not give the exact number of Mexicans killed, or indicate whether the vehicles were targeted by automatic weapons or ariel bombardment.
The Islamic State group in Egypt said in a statement that it had "resisted a military operation in the Western Desert" on Sunday.
Egypt has been struggling to quell an extremist insurgency in the Sinai peninsula, their main holdout in the country's east, since the military overthrew Islamist president Mohamed Morsi in 2013.
The government says hundreds of police and soldiers have been killed, many of them in attacks claimed by IS's Sinai Province affiliate.
Last week the army launched an operation in the area against IS which it said killed 56 extremists.
The army often reports large death tolls among the insurgents but they are impossible to verify and there has been little noticeable effect on IS's ability to carry out deadly attacks on the security forces.
Egypt's economy is traditionally driven by tourism but arrivals have plummeted as the country tries to recover from years of political and economic chaos.
About 10 million tourists visited in 2014, down sharply from a 2010 figure of almost 15 million people who visited the country with its archaeological sites and Red Sea resorts.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ