Northern Ireland's Social Development Minister Margaret Ritchie has threatened to withdraw funding to a group connected to the UDA unless decommissioning by the organisation begins within 60 days.
Ms Ritchie said this was in light of recent UDA-linked rioting in loyalist estates in Carrickfergus and Bangor.
The funding of £1.2m is for a project to transform loyalist communities. The initiative was designed to help under-privileged neighbourhoods while persuading paramilitaries to move away from violence.
The minister said she was not prepared to continue supporting a conflict transformation project without evidence of reduced criminality.
She said: 'I abhor paramilitarism of whatever hue. It, and the violence, intimidation and criminality which it almost invariably spawns, have no place in a peaceful modern society.'
Speaking after the violence, PSNI chief constable Hugh Orde said: 'If you want my personal opinion, I wouldn't give them 50 pence.'
The Minister for Foreign Affairs, Dermot Ahern, has endorsed Ms Ritchie's comments, saying paramilitary violence and criminality has no place in a Northern Ireland that is fast moving beyond conflict.
He said he believed that many of the leaders of the UDA and the UPRG have come to accept this reality and have shown leadership in trying to move forward and to deliver on it. However, he said they now need to go significantly further.
'The Government has been supportive of this process, as we have been supportive throughout of those progressive elements within loyalism who want to lead their people out of violence and darkness and into a brighter and productive future.'
Ulster Unionist leader, Reg Empey, said most within the UDA were dedicated to peace but added more needs to be done.
'Recent actions combined with a lack of decommissioning means the UDA have a job of work to do to convince the public that they are transforming and that this public money is money well spent,' he said.
'I would urge UDA representatives to redouble their efforts and create public confidence in their efforts to transform.'
