The Ulster Volunteer Force has expelled seven Portadown members who, it is believed, carried out the murder of a Catholic taxi driver during the Orange "siege" at Drumcree.
Senior security sources in the North say the unit's leader, a man nicknamed "King Rat", is under threat from both the UVF and the IRA.
His unit, based in a housing estate in Portadown, Co Armagh, has been openly critical of the loyalist ceasefire, which has held for five months since the IRA decision to return to violence.
The murder of the taxi driver, Mr Michael McGoldrick, outside Lurgan, Co Armagh, during the week of disturbances surrounding the stand off at Drumcree, threatened the position of loyalist representatives in the Stormont talks.
Senior UVF sources say the organisation began an investigation into the killing to see if any if its members had breached the ceasefire.
The inquiry was extended last weekend after the Portadown unit issued a statement, using the UVF's recognised codeword, criticising the leadership of the Progressive Unionist Party, which is close to the UVF.
The statement used the term "Lundy", one of the most potent "terms of criticism that can be levelled against a loyalist.
Senior UVF sources said yesterday that the Portadown unit was being "stood down with ignominy" but would not say what other action would be taken against it.
The decision to expel the unit, which has killed several other Catholics in Armagh and west Tyrone since the 1980s, was almost inevitable after it publicly criticised the PUP last weekend using the UVF codeword.
The statement was seen as being directed at the PUP leader, Mr David Ervine, and the decision to expel the Portadown unit would appear to be an endorsement of his political approach by the UVF leadership.
In its statement yesterday, the UVF said. "As a result of a preliminary investigation, a decision has been taken by the Command, Staff of the UVF to disband this unit as from August 2nd. There will be an ongoing investigation by the internal affairs section of the UVF into the activities of this particular unit."
The statement was read out to a television camera crew and a news photographer at an unknown location in Belfast by one of six men dressed in black and wearing balaclavas. They had four AK47 assault rifles, two submachine guns and two automatic pistols.
The UVF made no comment on the state of its ceasefire and said there would be no decommissioning of its weapons until IRA weapons had been decommissioned.
The Portadown unit has been the source of speculation in sections of the Northern Ireland media that the UVF is split.
Senior UVF sources dismiss this and describe the publicity surrounding the statements and activities of the Portadown unit as a "sideshow".
"King Rat" has, however, been a long standing UVF member and the decision to expel him and his unit was a protracted one.
The leader of the Portadown unit was present among the Orange protesters at Drumcree and visible to the RUC when the murder of Mr McGoldrick took place about 10 miles away on a road outside Lurgan. But senior security sources and the UVF concur that the Portadown unit carried out the killing under his directions.