The IRA's alleged involvement in a £26m robbery has damaged the peace process, Northern Ireland secretary Paul Murphy has said.
Paul Murphy said the political process was 'deeply damaged'
He acknowledged a deal to restore devolution was unrealistic before the next general election.
PSNI Chief Constable Hugh Orde said on Friday that he believed the IRA was behind December's Northern Bank raid.
Sinn Fein has rejected the claim. The DUP is calling on the government to move ahead without republicans.
Mr Murphy said alleged republican paramilitary involvement in the raid on the bank's head office in Belfast on 20 December "offended the principles" of the Good Friday Agreement aimed at restoring devolved government.
"It is very difficult to see where we go in the immediate future," Mr Murphy said.
He later told BBC Two's Newsnight there was "weighty evidence" of the IRA being involved in the robbery and said he had been briefed on the case by Mr Orde.
On BBC Radio 4's Today programme on Saturday, he added: "The IRA is not an isolated body, it is part of the republican movement.
"Irrespective of who knew what, irrespective of the fact that Sinn Fein has gone down this political road - and I believe their leaders are genuine in that - the fact that the IRA has been blamed now by the chief constable for this robbery does have serious implications for the peace process.
"The implications are essentially lack of trust and confidence between political parties in Northern Ireland, whose job it is to get together to try and do that deal in bringing back the assembly and the executive."
Mr Murphy is due to make a statement to parliament next week, when there will also be a debate on power-sharing in the province.
Conservative Northern Ireland spokesman David Lidington told Today that the government should consider the possibility of excluding Sinn Fein.
"I have no doubt that if the IRA was responsible for this bank robbery that members of Sinn Fein must, at the minimum, have been aware that this was being planned," he said.
Downing Street responded to Mr Orde's comments by saying on Friday that Tony Blair "took this development very seriously".
"He's made it repeatedly clear over the past two years that the political institutions in Northern Ireland can only be restored if there is a complete end to all paramilitary activity by those involved and that includes all criminal activity," a spokesman said.
"He fully supports the chief constable in his efforts to bring those responsible for this major crime to account."
The Democratic Unionist Party leader Ian Paisley will meet Mr Blair next week when he will call on the government to form a devolved administration without republicans.
Chief Constable Hugh Orde blamed the IRA for the raid
The DUP deputy leader has called for the Independent Monitoring Commission to produce an early report into the Northern Bank raid.
Peter Robinson said if the IMC concluded the IRA was behind the robbery, the commission could recommend Sinn Fein be excluded from any government in Northern Ireland for 12 months.
"Why should the whole of democratic society be held back because one party is so tied to criminality and terrorism that it isn't prepared to move forward," he said.
"Let the rest of us go forward without them. And the challenge therefore goes down to people like Mark Durkan and the SDLP.
"Are they prepared to leave go the hand of Sinn Fein and recognise that they aren't the kind of people that can be in government?
"Is Mark Durkan thinking that it is possible for him to be in government with bank robbers and terrorists?"
Sinn Fein's Martin McGuinness reiterated the IRA's denial of its involvement.
He said the chief constable had not produced any evidence to back up his claims.
The party's president Gerry Adams warned of a full-frontal assault on Sinn Fein's political project.