The Northern Secretary, Paul Murphy, has confirmed that from midnight on Sunday the British government will recognise the Ulster Defence Association's ceasefire.
The move follows a meeting between Mr Murphy and senior figures in the UDA last week.
Mr Murphy's predecessor, John Reid, withdrew the British government's recognition for the UDA ceasefire in 2001 because of the group's involvement in violence.
The latest report from the International Monitoring Commission said the UDA is still heavily involved in crime, and has carried out paramilitary shootings and attacks.
But the report also said the UDA leadership attempted to keep the peace on the streets during the marching season last year.
The Taoiseach, Bertie Ahern, has welcomed the decision and paid tribute to senior figures within loyalism.
