They were killed in an "ongoing army operation" in El Oued province, 600 kilometres (370 miles) southeast of Algiers, it said in a statement.
Five Kalashnikov assault rifles, three machine guns and an automatic pistol were seized, it added.
The ministry did not link the operation to an assault on Friday claimed by Al-Qaeda in the Islamic Maghreb on a gas plant in Krechba further south.
Today, Britain's BP and Norway's Statoil -- who run the plant with Algerian company Sonatrach -- said they would temporarily pull out their staff from two gas facilities in Algeria after the attack.
A total of "157 terrorists, including 10 commanders" were killed or arrested in military operations last year, according to the defence ministry.
A brutal civil war in the 1990s between the government and Islamists killed 200,000 people.
Despite adopting a peace and reconciliation charter in 2005 aimed at turning the page on the conflict, armed groups remain active in the centre and east of Algeria.
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