Sinn Féin MP Barry McElduff has been suspended from all party activity for three months after he posted a video online that relatives of the victims of the 1976 Kingsmill massacre described as callous and offensive.
The decision was made following a meeting of senior members of the party in Belfast.
Mr McElduff said he apologised "unreservedly" after the meeting.
He said: "Although I genuinely meant no offence, I accept that my actions were ill-judged and, while unintended, caused deep and unnecessary hurt and pain to the Kingsmill families.
"In recognising the serious consequences of my actions, I fully accept the party's decision to suspend me from all party activity for a period of three months."
The video in question showed Mr McElduff in a supermarket with a loaf of Kingsmill bread on his head.
Kingsmill is a well-known brand of bread in Northern Ireland. It shares a name with the south Armagh village that witnessed one of the most notorious incidents of the Troubles.
Republican gunmen stopped a van carrying textile workers on their way home, identified the Protestant occupants, lined them up at the side of the road and shot them.
Only one of the 11 men gunned down survived the attack.
Sinn Féin's Stormont leader Michelle O'Neill said sorry to the Kingsmill families after the meeting.
"To the Kingsmill families, I as the Sinn Féin leader in the North, want to apologise unreservedly for the hurt and pain that has been caused over the course of the last number of days in regard to Barry's tweet," she said.
Sinn Féin pays its elected representatives an average industrial wage and diverts the rest of their salaries into party coffers.
Mrs O'Neill said Mr McElduff would continue to be paid during his suspension.
"Barry is paid through the party resources and he will continue to be paid through the party resources," she said.
"He has been suspended as a party member for three months but he also has a mandate from the people of West Tyrone and he will continue to represent them in that way."
Mrs O'Neill said she had considered all disciplinary actions, including dismissing Mr McElduff from the party.
"I made very clear to Barry that his tweet was ill judged and that his tweet was indefensible and that it has caused hurt and pain to the Kingsmill families," she said.
"I don't believe that Barry's actions were malicious or were intended to cause the hurt and pain which they did.
"However, given the seriousness of the issue, I have suspended Barry for a period of three months from the party and Barry accepts that as an appropriate response in relation to the tweet activity."
The MP for West Tyrone posted the video on what was the 42nd anniversary of the shooting. When condemnation of the video began, Mr McEduff removed it and apologised.
We need your consent to load this rte-player contentWe use rte-player to manage extra content that can set cookies on your device and collect data about your activity. Please review their details and accept them to load the content.Manage Preferences
He said he had not realised or imagined for a second any possible link between the brand name and the Kingsmill anniversary.
He also said it was never his intention to offend anyone who had suffered grievously and apologised for any hurt or offence caused.
His party colleague, Máirtín Ó Mulleoir, who had retweeted the video also removed it and apologised.
The only survivor of the shooting, Alan Black, said the video had been like a punch in the stomach and called it callous. He said the three-month suspension was not sufficient.
"I watched all my friends being murdered, my 19-year-old apprentice crying for his mother, and then to watch on Friday a man standing and mocking their deaths, if he was a man of principle he would walk," he said.
Mr Black accused Sinn Féin of "circling the wagons" around Mr McElduff.
"If he didn't know the fifth of January was the Kingsmill massacre, it's beyond me," he told UTV.
Bea Worton, whose son Kenneth was murdered, told the broadcaster Mr McElduff should have been "put out" of Sinn Féin.
"Mrs O'Neill wants equality, and that's the equality we get?," she said. "We get no equality."
A number of unionist politicians have called for Mr McElduff to resign.
Earlier, Sinn Féin's National Chairperson Declan Kearney described Mr McElduff's actions as "inexcusable and indefensible". Sinn Féin TD Pearse Doherty said he did not think that Mr McElduff should resign.
