This is days after the army chief called for a popular mandate to tackle "violence and terrorism".
Brotherhood spokesperson Gehad El-Haddad said the shooting started shortly before pre-dawn morning prayers on the fringes of a round-the-clock sit-in being staged by backers of Morsi, who was toppled by the army more than three weeks ago.
"They are not shooting to wound, they are shooting to kill," Haddad said. The death toll might be much higher, he said.
Activists rushed blood-spattered casualties into a makeshift hospital, some were carried in on planks or blankets. One ashen teenager was laid out on the floor, a bullet hole in his head.
Al Jazeera's Egypt television station reported that 120 had been killed and some 4 500 injured in the early morning violence. A Reuters reporter at the scene counted 36 bodies at an improvised morgue.
There was no immediate comment from state authorities on what had happened. If the death toll is confirmed it would be the deadliest incident since Morsi was deposed, who is under investigation for a raft of crimes, including murder.
Weeks of violence have followed his ousting, leaving more than 200 dead and laying bare divisions that have polarised the Arab world's most populous state.
Hundreds of thousands of Egyptians came out onto the streets in answer to General Abdel Fattah al-Sisi's call on Wednesday for mass protests on Friday. Muslim Brotherhood supporters protested in similar numbers to demand Morsi's reinstatement. He is being detained at an undisclosed location.
The Brotherhood is a highly organised movement with grassroots support throughout Egypt, making it hard to silence even if the army decides to mount a more major crackdown.
Reporters at Rabaa al-Adawia, a northeastern Cairo suburb, said there was still firing hours after the violence started. Dr. Ibtisam Zein, overseeing the Brotherhood morgue, said most of the dead were hit in the head, some between the eyes.
A senior Brotherhood politician, Saad el-Hosseini, said he thought security forces were looking to clear the Rabaa sit-in.
"I have been trying to make the youth withdraw for five hours. I can't. They are saying have paid with their blood and they do not want to retreat," he told Reuters.
Haddad said the Brotherhood was committed to pursuing peaceful protests, despite Saturday's deaths – the second mass shooting of its supporters this month by security forces, who killed 53 people on July 8.
Brotherhood activists at Rabaa said they would not be cowed and warned of worse bloodshed if the security forces did not back down. "We will stay here until we die, one by one," said Ahmed Ali, 24, helping treat casualties at the field hospital.
"We have the examples of Algeria and Syria in our minds. We don't want it to become a civil war. If we take up arms it might become one. This is a religious belief."
Haddad said police had started firing repeated rounds of teargas after 3am (0100 GMT) at protesters who had spilled out of the main area of the Rabaa sit-in and were on a main thoroughfare close to 6th October Bridge.
"Through the smog of the gas, the bullets started flying," he said. In addition to "special police forces in black uniforms" firing live rounds, he said that snipers shot from the roofs of a university, other nearby buildings, and a bridge.
State news agency MENA quoted an unnamed security source as saying that only teargas was used to disperse protesters. He said no firearms were used.
Egypt's army-installed interior minister, Mohamed Ibrahim, said on Friday that the month-old Cairo vigils by Morsi supporters would be "brought to an end soon and in a legal manner", state-run al Ahram news website reported.
There is deepening alarm in the West over the army's move against Morsi. The country of 84-million people forms a bridge between the Middle East and North Africa and receives $1.5-billion a year in mainly military aid from Washington.
The United States has delayed delivery of four F-16 fighters because of the turmoil, however, officials have indicated they do not intend to cut off aid to a country seen as a vital ally and which has a peace deal with neighbouring Israel.
The worst of Friday's violence was reported in Egypt's second city, Alexandria, and the Brotherhood said some of its supporters were still trapped in a city mosque by "thugs".
The Brotherhood's political arm, the Freedom and Justice Party, called for more protests in the Mediterranean port.
There was little mention of the violence on Egypt's two state television channels, which broadcast weather reports and a talk show on Saturday morning. All three state newspapers headlined their morning editions with Friday's rallies, saying Egyptians had given Sisi the support he had asked for.
"The people give the army and the police a mandate to confront terrorism," said a strap headline on the bottom of a broadcast on the state's Nile TV.
However not all Egyptians appeared ready to endorse an army crackdown, with growing concern among some activists that the confrontation between the military and Islamists could push the country into an abyss. – Reuters