THE charity watchdog is demanding an explanation from the Joseph Rowntree Charitable Trust over claims that it gave £275,000 to an organisation linked to the INLA.
The Quaker trust's website shows a grant of £149,915 to Teach Na Failte in November 2014 and another of £125,000 in March last year.
Teach Na Failte, which supports ex-INLA prisoners, shares its Falls Road offices with the headquarters of the Irish Republican Socialist Party (IRSP).
The INLA declared an end to its armed campaign in 2009 and began decommissioning its weapons.
However, a PSNI and MI5 assessment conducted for the Stormont Executive six years later said that the INLA's "structures remained in place and it continues to be heavily involved in extortion, paramilitary activity and intimidation against people involved in drug dealing in the community."
In April, the IRSP headquarters was searched as part of a major police operation involving 200 officers, along with the HMRC and National Crime Agency, aimed at disrupting criminal enterprises operating under the direction of the INLA.
The IRSP dismissed the raids as "political policing" and a "publicity stunt".
The Times reported that the Charity Commission is seeking a response from the Rowntree trust to the claims made in the paper.
Michelle Russell, the commission's director of investigations and enforcement, said: "Charities should be able to explain and justify their funding decisions. We have asked the charity to do this."
The commission added that it would "not hesitate" to take action if needed.
The Joseph Rowntree Charitable Trust said it has worked to end violence in Northern Ireland for more than 40 years and funds groups "transitioning from violence in loyalist and republican communities".
The organisation insisted it "has no relationship with any armed groups or proscribed organisations, including the INLA".
A statement said: "Teach na Failte is recognised by HMRC as a charitable body. It provides a range of peace-building community initiatives including support for INLA ex-prisoners and their families.
"Teach na Failte has been a key player in the INLA ceasefire and decommissioning process.
"It has been recognised for its positive contribution to peacebuilding and the re-integration of former prisoners in Northern Ireland."
The Trust said that the payments were for a 'Transition Initiative' project to support "peacebuilding, dialogue and conflict transformation strategies".
"We are content with the progress being made by the project which is subject to strict monitoring processes by the trust," it added.
The INLA, which formed in 1974, was responsible for some of the most high-profile killings of the Troubles.
In 1979, it killed Conservative MP and Northern Ireland spokesman Airey Neave with a bomb under his car in the House of Commons car park.