Sinn Fein has vowed to "fight the British Government" over plans to impose sanctions on parties linked to paramilitary groups still involved in violence.
IMC includes former CIA chief Richard Kerr
The move was announced by Secretary of State Paul Murphy after the publication of a report which highlighted the levels of paramilitary activity by both republican and loyalist groups.
The latest crisis in the political process was triggered by the alleged false imprisonment of dissident republican Bobby Tohill in February.
The Independent Monitoring Commission (IMC) report, published on Tuesday, recommended action against Sinn Fein and the Progressive Unionist Party in response to continuing IRA and loyalist violence.
Sinn Fein chairman Mitchel McLaughlin said: "We will fight this with every means at our disposal in a political way.
"We will take advice, technical and legal, and we will respond to it.
"But we will fight the British Government on this matter."
Billy Hutchinson of the Progressive Unionist Party said the sanctions were illegal and could not be enforced.
"Once again, the British Government will go through all this and find out in a few years' time that they have to apologise to everybody because they acted outside the system," he said.
He said the government had "taken a hammer to crack a nut".
DUP leader Ian Paisley condemned the government's decision to impose financial sanctions on Sinn Fein as bringing in a "murder tax".
He told the House of Commons that the move was "a nonsense" and that it was not a time for the government to do its sums.
Instead it should look at the one remedy available to it - that if parties don't keep to the rules that govern the talks - then they should not be allowed to take part.
Ulster Unionist leader David Trimble said that action on prisoner releases would be better than proposed financial penalties.
"It is a weakness that the IMC cannot sanction organisations without political representation. This omission is particularly glaring with UDA, a major offender," he told the House of Commons.
"But does the secretary of state not have the power to act under prisoner release legislation and would not such action not be better than the proposed financial penalties?"
SDLP MP Seamus Mallon urged Mr Murphy not to waste time "'scratching at the surface with meaningless financial sanctions".
He said the kind of "petty cash sanctions" being imposed on Sinn Fein and the PUP were risible and that the type of organised heist of cigarettes which took place in his constituency over Christmas would pay for such sanctions for 22 years.
'Exclusively democratic means'
An Irish Government spokesperson said the report painted "a disturbing picture in relation to paramilitary and criminal activity".
"The government acknowledge the constructive contributions that have been made by various parties in advancing the peace process to this point.
"But six years after the Agreement was signed, it is clear what must now be done if stable politics and a peaceful society in Northern Ireland are to be assured.
"The transition to exclusively democratic means must be completed. We want this to happen once and for all, and as soon as possible."
Shadow Northern Ireland secretary David Liddington, expressed profound concern about the report.
He questioned whether the financial sanctions against the PUP and Sinn Fein went far enough and asked Mr Murphy whether given the IMC's findings, Sinn Fein should now be allowed to continue to hold office at Westminster.
Liberal Democrat spokesman on Northern Ireland Lembit Opik asked the secretary of state whether the IMC's report would alter the government's definition of a ceasefire.
He also asked whether it intended to continue discussions with Sinn Fein and the PUP in the light of its findings.
US State Department spokesman Richard Boucher said paramilitary activity was "the biggest obstacle to political stability and a normal environment for the people of Northern Ireland."
Responding to the IMC's findings, he added: "It is incumbent upon all parties to use their influence to end permanently all forms of paramilitary activity."