DUP politician Peter Robinson believed the union was "finished".
Among the files released today is a confidential report by an NIO official on a meeting with Mr Robinson, deputy leader of the DUP at the time.
Danny McNeill, in a 'note for the record' dated October 15 1991, said Mr Robinson saw no immediate prospect of his party leader, Ian Paisley engaging in political talks.
He said Mr Robinson believed Mr Paisley was convinced he had taken too great a risk in agreeing to Charlie Haughey or any other Irish minister coming to Belfast for Strand Two (the north-south element of any talks) and Paisley is "convinced that he could not sell that idea to his supporters".
Looking to the longer term, he said people in the Protestant community were increasingly focused on independence.
McNeill informed his colleagues: "He said that he did not advocate that (though I am not entirely convinced) but that if any credible politician were to advocate it, then the independence movement would develop very quickly".
The DUP politician did not see an independent Ulster as a solution to the ongoing violence and thought that there might be "a major explosion" of violence.
However, he told the official, "that all British governments and any potential governments had made it clear that the union was finished and that most Protestants to whom he spoke knew that ... the only alternative which they could see was independence".
Mr Robinson's views on loyalist violence startled the NIO official: "Robinson saw the recent rise in Protestant paramilitary violence as due to Protestants' frustration at the fact that, politically, they can achieve little.
"The Anglo-Irish Agreement is still in place… HMG (the British government) is selling out the union."