The violence broke out when police attempted to evict residents staying or utilizing state land without permission, part of an ongoing, nationwide campaign launched by President Abdel-Fattah el-Sissi to retake state property illegally controlled or run for profit by individuals or commercial enterprises.
Anyone using land that does not rightfully belong to them, he angrily said, is a "common thief".
The health ministry said the victim - identified as Sayed Tafshan - was a resident of al-Waraq island, but did not elaborate on the circumstances of the death. It did not say how the man was killed.
On the other hand, the police said in a statement on Sunday that the clashes injured eight policemen, including two generals, besides 29 police conscripts and workers.
The Interior Ministry, which controls the police, said its forces only used tear gas.
A statement by the interior ministry said at least 31 police forces were also injured in the clashes.
Egypt: One person killed and at least 19 injured as Nile Island squatters clash with Cairo police
Video clips posted on social media networks showed hundreds of angry islanders, mostly young men, at the man's funeral, marching through farm fields while chanting "We will sacrifice the martyr with our soul and blood".
Security forces fired tear gas to prevent people from gathering.
Ten residents were arrested, it added. According to the government, there are around 700 recorded building and land violations that it is seeking to eradicate.
Al-Warraq is only 1,300 acres big, but is home to around 90,000 people.
Security forces arrived at al-Warraq on Sunday morning in an attempt to move people ahead of planned demolitions of buildings allegedly built there illegally - but were met with resistance from protesting locals. "How is my home illegal when you have for years provided me with water and electricity", said resident and civil servant Mahmoud Essawi.
In a separate development, Egypt's military said its jet fighters destroyed 15 all-terrain vehicles carrying weapons and explosives along with "criminal elements" after they were detected getting ready to cross the Libyan border into Egypt. It also did not mention Libya by name.