Any government funding of loyalists linked to the UDA must be halted, Alliance leader David Ford has said.
David Ford said funding had to stop
The DSD is spending more than £1m on a conflict transformation initiative involving members of the UDA's political representatives, the UPRG.
Mr Ford told BBC Radio Ulster's Inside Politics the latest loyalist dispute raised questions over official funding.
A police officer was shot in Carrickfergus during a stand-off between rival UDA factions last week.
"I can see at the moment very little reason why there should be any funding for the UPRG on the basis that the UPRG has not yet shown the signs that they are engaging in normal democratic politics," Mr Ford said.
"Indeed it seems to me that the confrontation in Carrickfergus last weekend was not just a one-sided confrontation - the notion that there is somehow one baddie faction of the UDA and one goodie faction of the UDA seems to me to be absolute rubbish."
Mr Ford said it was time the government recognised "evil is evil wherever it comes from".