The government has announced it no longer recognises the Ulster Volunteer Force (UVF) as being on ceasefire.
Young mothers walk past a UVF mural in Belfast
The decision to "specify" the UVF and Red Hand Commando (RHC) was made by Northern Ireland Secretary Peter Hain.
Mr Hain was given a report from the Independent Monitoring Commission on the UVF's feud with the Loyalist Volunteer Force (LVF) last week.
David Ervine, whose Progressive Unionist Party is linked to the UVF, said the move was "hardly unexpected".
Citing the "ruthless" attacks on police during weekend rioting by loyalists, Mr Hain said violence did not pay.
"They have got to find a political way forward and my door is open to loyalist representatives to find out what their agenda is," he said.
"Their agenda for the future not just their past grievances, which are important especially in these deprived communities, but also what their future agenda is, because Northern Ireland has got to look forward."
The UVF was also blamed for orchestrating the riots following the re-routing of an Orange Order parade.
Loyalists clashed with police following the re-routing of the parade in Whiterock, west Belfast on Saturday.
The UVF has also been linked to four recent murders, related to its feud with the LVF.
The leader of the nationalist SDLP, Mark Durkan, said the decision to specify the group was "overdue".
"While the secretary of state specifying the UVF might not make a direct difference to what the UVF does, it does at least recover some credibility for the secretary of state and the NIO," he said.
"It does at least create a situation where the state is setting some sort of standards.
"Because in the absence of the state setting standards we have the law of anything goes."
The UVF was set up in the late 1960s to fight resurgent Irish nationalism, but it used the name of the original UVF which was created by Sir Edward Carson in 1912 to fight home rule.
But far from withering away with the end of the Troubles, the UVF appears to remain active.
Mr Hain said he now intended to lay an order before parliament to have the decision approved.
"I have reviewed the status of all specified and other paramilitary organisations, as I am obliged to do under legislation, and concluded there are sufficient grounds to specify the UVF/RHC," he said.
He said the actions of the UVF in respect of their ongoing feud, along with the attacks against the security forces on 10 and 11 September amounted to a breakdown in their ceasefire.
David Ervine, whose Progressive Unionist Party is linked to the UVF, said the move by the government was "hardly unexpected".
He described it as "tragic" and said it would mean there would be more ground to cover once the UVF was restored to the political process.
The Independent Monitoring Commission was set up by the British and Irish governments in January 2004.
It is a crucial element in the two governments' plans for restoring devolution, which was suspended in October 2002 amid allegations of IRA intelligence gathering at the Northern Ireland Office.