The IRA's decision to withdraw an offer to decommission all its weapons is a "setback", Number 10 has conceded.

But the prime minister's spokesman said on Thursday that he rejected suggestions that the peace process is now "unravelling".

Sinn Fein chief negotiator Martin McGuinness has blamed the British and Irish governments for the latest difficulties in the talks.

But republicans have been forced on to the back foot by claims backed by both Tony Blair and Bertie Ahern that the IRA was responsible for December's Northern Bank robbery in Belfast.

The Irish premier has also claimed that Sinn Fein's senior leaders would have had prior knowledge of the raid.

In a statement issued late on Wednesday evening, the IRA said its commitment to the peace process had been "attacked, devalued and dismissed".

"At this time it appears that the two governments are intent on changing the basis of the peace process," it said.

"They claim that 'the obstacle now to a lasting and durable settlement is the continuing paramilitary and criminal activity of the IRA'. We reject this."

Number 10 response

Downing Street responded to the IRA's decision by insisting the government does not want conflict with republicans.

Following the latest announcement that the paramilitary group would not fulfil its peace process commitments, Number 10 insisted that this did not spell an end to hopes for restoring devolution.

The prime minister's official spokesman pointed out that republicans had made this move before, significantly in October 2003.

"To that extent we are not surprised," he said.

"The government is not seeking confrontation with Sinn Fein. We recognise the contribution they have made to the peace process, but equally it is our duty to tell the facts as they are."

Downing Street insisted that all forms of paramilitarism and criminality must come to an end before the suspended Stormont institutions can be restored.

"What the people of Northern Ireland voted for in 1998 was a complete end to paramilitary activity," said the spokesman.

However, he denied that the devolution process was "unravelling".

"Nobody is pretending that the robbery is anything other than a setback," Number 10 said. "But the IRA is the only remaining obstacle to restoring devolution."

Sinn Fein claims

McGuinness said the IRA's move was a "direct consequence" of governments' decision to blame the IRA for the bank raid.

"The two governments have embarked on a course of confrontation with republicans and I think they are engaged in the sterile politics of the blame game without any consideration of the consequences," he said.

"I think that the IRA have had a good heart for this process. I think in their statement they have made it quite clear that they are very supportive of a viable peace process," the senior republican also told the BBC.

"But what we are dealing with here is the fall-out from the refusal of Ian Paisley to go into power-sharing institutions, all-Ireland institutions, in December last year.

"As politicians, our job is to sort all of this out and I think there is now a mighty responsibility on the two prime ministers, the two governments and indeed the rest of us to do whatever we can to ensure that we don't see all of the good work of the last 10 years effectively undermined."

Walked away

Rev Ian Paisley said the IRA statement was "another attempt to bargain with the government in order to take the pressure off them".

"The Northern Bank heist confirmed that the IRA never put an offer on the table that they intended to keep," said the DUP leader.

"The IRA had never any intention of decommissioning in a credible, transparent and verifiable way.

"They never had any intention of giving up their criminal empire.

"That is why they walked away from the table last year."