The family were travelling with First Choice which issued a statement promising a "full and thorough investigation".
The tour operator said: "First Choice can sadly confirm that a child has died while staying at the Coral Sea Waterworld hotel in Egypt.
"The incident occurred in a pool in the hotel's waterpark.
"Our thoughts and condolences are with the family at this extremely difficult time.
"The British Consulate were immediately informed and they are now working with our dedicated resort team in Egypt, to offer every assistance possible to the family in resort.
"In partnership with the hotelier, our resort team are working to understand how the incident occurred, and we will be carrying out a full and thorough investigation.
"At this time our priority is to provide support to the family."
The hotel described the girl's death as a "tragic accident" in a message on its Facebook page.
It said: "We can sadly report that today a young child died at the coral sea water world. The incident occurred in one of the pools in the water park. It is believed to be a tragic accident."
The Foreign Office confirmed the death and said it was "providing consular assistance to the family at this difficult time".
Sharm el Sheikh is a popular holiday destination overlooking the Red Sea.
Reported from Sky News