The NIO last night (Wednesday) said the former Maze prison was the only suitable location for a new sports stadium, but a Sports Council member claimed it may never be built.
NIO minister Ian Pearson announced that the proposed 30,000-capacity multi-sports arena would be built at the site near Lisburn in Co Antrim.
Sports Council member and Belfast UUP councillor Jim Rodgers described the decision as "disastrous, but not unexpected".
The Maze site has been chosen ahead of two Belfast locations: the Titanic Quarter and North Foreshore.
Mr Pearson claimed the Belfast sites were too expensive.
"I can confirm that we are now moving forward with this business planning work on the basis that, as far as sites are concerned, we are only considering the Maze/Long Kesh," he said.
The £60 million stadium is part of a £1 billion project proposed by a cross-party group aimed at transforming the notorious 300-acre site and creating 1,000 jobs.
The plans published last month also include a centre for conflict resolution – with at least one of the H-Blocks to be retained – an arts centre, office blocks, hotels, a leisure village and an equestrian centre.
Mr Pearson said final plans for the stadium and surrounding infrastructure are due to be completed by the autumn.
However, Mr Rodgers said: "I feel that the government will regret this decision in the long term.
"If you look at stadiums around the world that have been built outside the main city, they are being demolished and replaced by new builds in the heart of the city.
"We went through a process of expressions of interest and a shortlisting but the dogs in the street knew it was always going to be the Maze, if indeed the stadium is ever built.
"If you listen to what the Ulster branch of Irish Rugby Football Union said last week (announcing a major renovation at Ravenhill), what the GAA are saying and to a lesser degree what the Irish Football Association are saying, I am fearful that if it does go ahead it could be a white elephant."
Earlier, Mr Pearson announced he was also in talks with the Royal Ulster Agricultural Society (RUAS) about their possible relocation from the King's Hall in south Belfast to the planned Lisburn complex.
RUAS chief executive Michael Guest last night said it was booked into the King's Hall at least until 2008 and the Balmoral Show would be hosted there "for the foreseeable future".
"However, the society would not rule out the possibility to relocate," he added.
