The court ordered a retrial for the defendants over the attack, which killed 13 policemen near Cairo on August 14, 2013, the day police shot dead hundreds of demonstrators in the capital, the source told AFP.
The initial ruling in February 2015 came amid a series of death sentences in mass trials that were criticized internationally, as the government cracked down on supporters of ousted Islamist president Mohamed Mursi.
The court had also sentenced 37 people to death in absentia, but they would have to hand themselves in for a retrial.
The grounds for the appeals court ruling were not immediately available, but the court has overturned hundreds of death sentences over the past year, to the relief of rights advocates and frustration of some in the government who have urged fast track executions.
Seven people have been executed for political violence since Mursi's ouster, including six who were convicted of belonging to a militant group.
The military overthrow of Mursi, the country's first freely elected president, ushered in the worst domestic bloodshed in the country's modern history.
Mursi ruled for only a year, deeply dividing the country, and his removal was met with escalating protests by protesters that police dispersed with live ammunition.
On August 14, 2013, less than two months after his overthrow, police broke up two protest camps in Cairo, killing about 700 protesters.
Mursi's supporters around the country attacked police stations, killing dozens of officers, and torched the churches of Coptic Christians.
Mursi himself is facing several trials and has already been sentenced to death in one case.
Several leaders of his Muslim Brotherhood movement, including its chief Mohamed Badie, have been sentenced to either death or lengthy jail terms.
The movement has been blacklisted as a "terrorist organization" and its assets confiscated.