The UVF has suspended contact with the international decommissioning body headed by Gen John de Chastelain.
The paramilitary group's political wing, the Progressive Unionist Party (PUP), said that the action has been taken because of increasing loyalist disillusionment with the peace process and continued targeting of unionists by the Provisional IRA.
A representative of the decommissioning body said he had noted that the contact was "being suspended rather than totally broken". He hoped that contact would be re-established quickly.
The PUP also announced yesterday that it was breaking off contact with Sinn Féin until it had clarified republican intentions towards the loyalist community and the peace process.
The developments follow a statement from the UVF, and the smaller loyalist Red Hand Commando group, on Thursday warning that its support for the peace process was under serious pressure.
The PUP yesterday condemned the British government's handling of the peace process. It accused the British prime minister, Mr Tony Blair, and Sinn Féin of operating an exclusive process and of trying to strike a secret deal.
PUP Assembly member Mr Billy Hutchinson, who was the UVF's appointed contact with the decommissioning body, said that he had spoken to Gen de Chastelain and his colleagues.
"I have informed them that the UVF and Red Hand Commando have asked me and my colleagues to suspend any talks with them."
Mr Hutchinson said that there was "massive disillusionment" in the two paramilitary groups at the handling of the peace process. The British government seemed to be interested only in a deal with Sinn Féin and the Provisional IRA.
The PUP leader, Mr David Ervine, said there was "dismay" at the peace process in his community. People were suspicious about the price Mr Blair would pay for movement on outstanding issues from the Provisional IRA. While the British government and Sinn Féin took part in private discussions, other parties wondered why they were excluded from those negotiations.
"It is significant that the whole of unionism right across the board is saying pretty much 'enough is enough'. Only an open, transparent process has a chance. A closed process dealing with the wants of Sinn Féin only will not succeed," Mr Ervine said.
He questioned the sincerity of republicans when the Provisional IRA was continuing to target members of the unionist community. "Until there is a clear appreciation of their honourable intent towards the unionist people in Northern Ireland, the PUP will break off all contact with Sinn Féin."
Mr Blair's official spokesman denied that the peace process was "one-sided" and pointed out that the principle of consent was enshrined in the Belfast Agreement.
Mr Blair is due to meet the Taoiseach, Mr Ahern, at Downing Street next week to discuss the political situation in the North.
Sinn Féin denied that republicans were responsible for the UVF decision. Party Assembly member Mr Gerry Kelly described the development as a retrograde step which would worry Catholics living along Belfast's peace-line.
The Chief Constable of the Police Service of Northern Ireland, Mr Hugh Orde, described the UVF's statement warning of disillusionment with the peace process as a "worrying development", but said he had no specific intelligence to suggest that the UVF ceasefire was under threat.