Social Development Minster, Margaret Ritchie, has announced that over £1m in funding allocated to a loyalist community project linked to the UDA is to be withdrawn immediately.
In a statement to the Assembly, Ms Ritchie said the actions of the Ulster Defence Association had meant the retention of the Conflict Transformation Initiative could not be justified.
Ms Ritchie said: "The UDA's fractious nature means, at this time the organisation is unable to meet the objectives of the CTI (Conflict Transformation Initiative).
"The CTI project can no longer be justified and I propose to end it immediately," she said.
Immediately after her statement, Peter Robinson of the DUP said she had made an absurd and bizarre decision which he claimed was a breach of her Ministerial Code of Office.
Mr Robinson claimed she had "ignored" the government's own legal advice and "might be acting beyond her legal powers".
Ms Ritchie announced in August that she was giving the UDA 60 days to decommission or she would cut off the £1.2m Conflict Transformation Initiative.
The fund had been set up by Direct Rule ministers in consultation with the UDA's advisors in the Ulster Political Research Group.
Mrs Ritchie imposed the deadline after the UDA was linked to violence, including attacks on police and feud-related incidents in Carrickfergus and Bangor.
The paramilitary group began meeting General John de Chastelain's decommissioning body as the Minister's deadline approached and named a new point of contact.
Secretary of State Shaun Woodward had hailed the move as progress. But the UDA said it would actually deal with arms according to its own timetable - which has not been made public - and the group was linked to further violence in Carrickfergus at the weekend.