The RUC believes republican dissidents were planning to mount an imminent attack after a 130lb bomb was found near Sixmilecross, Co Tyrone. Three men and three women were arrested following the discovery.
The explosives were found on Tuesday night in a creamery can at a house at Glenaness Road, on the outskirts of the village 11 miles from Omagh. In 1998, 29 people were killed in a "Real IRA" bomb in the town. RUC sources would not elaborate on whether the Continuity IRA or "Real IRA" were involved in the latest incident.
The Continuity IRA is the only republican paramilitary group not on ceasefire but the "Real IRA" has unofficially ended its ceasefire and has been responsible for dozens of attacks in the past year.
A husband and wife were arrested following the find in Sixmilecross and two men and two women were detained in follow-up searches in Newtownbutler, Co Fermanagh.
Supt James Baxter of the RUC said lives had been saved following the device's discovery.
"A bomb of this size could have caused any amount of death and destruction. The people of Omagh do not need any reminder of the devastation and destruction which a bomb can cause," he said.
"I have no doubt with the recovery of this bomb, we have saved lives, if not in Omagh, in some other town or area."
SDLP Assembly member Mr Joe Byrne said he was shocked. "It is a very worrying development at this time when virtually everyone is expecting movement on decommissioning."
Mr Michael Gallagher, whose son Aidan was among those killed in the Omagh bomb, said British Prime Minister Mr Tony Blair should use every resource at his disposal to bring dissident republican paramilitaries to justice.
"It is obvious these people are not going to go away. It is up to the British government to apply the same resources to this situation as they are applying to Afghanistan," he said.
"They should realise that as far as Britain is concerned, their greatest danger still comes from Ireland rather than the Middle East. Whilst they must act along with the Americans, they must seriously look at what is happening in this country.
"We are now heading towards a vacuum and the people who are going to fill that vacuum are the people have done it in the past, and who go back to what they do best - bombing and shooting."