Ihab al-Sharif had parked his car in front of a food store in the Hay al-Jamaa neighbourhood in western Baghdad when two cars screeched to a halt and seven armed men jumped out, an eyewitness told news service AFP.
The assailants apparently pistol-whipped Mr Sharif, causing him to bleed profusely, before bundling him into the back of a car and speeding away.
Mr Sharif had been named the first Arab ambassador to post-Saddam Hussein Iraq on June 1 but had yet to formally take up the post.
In Cairo, the Egyptian Foreign Ministry confirmed the diplomat was missing and said contacts were underway with the Iraqi government “and all other sides” to win his release.
Egyptian Foreign Ministry official Hani Khallaf said the government “hopes that those responsible for his disappearance will treat him as a patriot and as supporter of the Arab cause.”
Mr Sharif’s Iraqi counterpart in Cairo, Saad Mohammed Radhi, condemned the abduction, blaming “terrorists who don’t have any religion, faith or purpose.”
The kidnapping has been seen as an apparent bid to discourage the country’s Arab neighbours from bolstering ties to the US-backed Iraqi government.
Insurgents briefly held another Egyptian diplomat in July 2004 and also kidnapped an Iranian envoy, but both were later released unharmed.
News of the abduction came as US Attorney General Alberto Gonzales made a surprise visit to Baghdad, his first to Iraq, for talks with US and Iraqi officials.
Mr Gonzales said later that Iraq was ready to accept US help in investigating the killing and kidnapping of government officials.
While details still need to be worked out, investigators from the FBI and other US law enforcement agencies would join their Iraqi counterparts at crime scenes and in other aspects of the probes.
Meanwhile, the British government has expressed “deep concern” over reports of abuse of detainees by Iraqi police.
Britain’s Observer newspaper said it had photographic evidence from post-mortem and hospital examinations of torture of suspected militants by Iraqi security units.
Allegations of abuse included burning, strangulation, sexual abuse, hanging by the arms and the breaking of limbs.