Australian Peter Greste, Canadian-Egyptian Mohamed Fahmy and Egyptian national Baher Mohamed were sentenced to seven to 10 years on charges including spreading lies to help a "terrorist organisation" -- a reference to the outlawed Muslim Brotherhood.
The trial was condemned by human rights groups and Western governments and prompted the United Nations to question Egypt's judicial independence. The case has also contributed to tensions between Egypt and Qatar, where Al Jazeera is based.
The reporters' imprisonment is a thorny issue for President Abdel Fattah al-Sisi as he seeks to prove his commitment to democratic reforms. He could pardon or deport them but has so far refused to intervene, citing the independent judiciary.
Relatives' hopes the retrial decision would include an immediate release on bail for the men, held for over a year in the tough Tora Prison, were disappointed, but their lawyers can apply for bail at the first retrial hearing. Two defence attorneys said the new proceedings could begin within a month although the judge had not set a date.
"They will not be released until they appear before the new chamber, which will decide whether to release them or not," said Mostafa Nagy, who represents Greste and Mohamed.
The journalists say they were simply reporting the news when arrested in December 2013.
Greste's parents, grim-faced, left quickly after the hearing at the High Court in Cairo. "We need some time to process. It's not as positive as we had hoped," his mother, Lois, said.
Australian ambassador Ralph King, accompanying them, told reporters: "Journalists should not be imprisoned for doing their job. I hope this trial will be fair and transparent."
In a statement, Al Jazeera reiterated its position that the trial was flawed and demanded the release of its journalists.
"The Egyptian authorities have a simple choice -- free these men quickly or continue to string this out, all the while continuing this injustice and harming the image of their own country in the eyes of the world. They should choose the former," the TV channel said.
Human rights groups say repression has been growing in Egypt -- a strategic U.S. ally -- since then army chief Sisi toppled elected President Mohamed Mursi of the Muslim Brotherhood in July 2013 following mass protests against his rule.
Many Egyptians see Al Jazeera as a force determined to destabilise the country, a view that has been encouraged in the local media, which has labelled the journalists "The Marriott Cell" because they worked from a hotel of the U.S.-based chain.
Mursi's ouster soured ties between Egypt and Qatar, which backed the Brotherhood. But recent Saudi-led efforts to repair relations had raised hopes the journalists might be freed.
"I hope relations keep getting better (between Qatar and Egypt) for those poor, innocent journalists who got stuck in the middle," Fahmy's brother Adel said at the court.
Fahmy's fiancee, Marwa Omara, told reporters before the court ruling that she expected a political solution to end the journalists' imprisonment, not a legal one.
Rights groups accuse courts of deepening a crackdown on dissent in Egypt, which has suffered from political turmoil since an uprising toppled autocrat Hosni Mubarak in 2011.
While judges have handed down harsh sentences, including the death penalty, against Islamists, members of the old political elite are slowly being freed.
In November, a case against Mubarak over the killing of protesters in the 2011 uprising was dropped, dimming hopes that the end of his 30-year rule would bring a new era of openness.
