The notorious 'Glenanne gang' planned to attack St Lawrence O'Toole Primary School in the tiny village of Belleeks days after republicans murdered 10 Protestant workmen at Kingsmill.
The massacre was abandoned on the orders of the UVF's Belfast leadership, who ruled it would be "morally unacceptable" and could have led to all-out civil war.
The Glenanne gang, which included serving members of the RUC and UDR, was responsible for dozens of killings in the border area in the mid-1970s, including murders in Dundalk, Silverbridge, Whitecross and Gilford.
However, victims' families have called for a public apology after the British army's official account of the Troubles claimed that these murders were the result of a feud between the UVF and IRA.
As part of their efforts to uncover the full extent of security-force collusion in their loved ones' deaths, in 2001 the south Armagh families met a former RUC man who had been sentenced to life imprisonment for his part in the Glenanne gang murders.
Alan Brecknell, whose father Trevor was one of three people shot dead by the gang in December 1976, said the former RUC man confirmed the gang's plan to murder the children after the Kingsmill attack.
"According to this person the proposal was to attack the primary school in Belleeks, Co Armagh and kill 30-odd children and their teacher," he said.
Mr Brecknell said the plan was only abandoned because the UVF leadership felt it would lead to a civil war and were suspicious that the gang member who suggested the attack was working for British military intelligence.
The former UDR colonel was later shot dead by the IRA.
In 2004 another gang member, former RUC man William McCaughey, also said the gang had planned to attack a primary school in revenge for Kingsmill.
Mr Brecknell said the families were angry at the British army's attempts to disown involvement in the murders of their loved ones, given the gang was heavily made up of security force members and was controlled by British military intelligence and/ or RUC Special Branch.
"We acknowledge that the UVF did not follow through on this plan," the families said.
"The failure of the PSNI to interview McCaughey... has added to our suspicions.
"This is the reason we are so angry and shocked at the claims made in this document of an alleged feud."
Mr Brecknell said the families were convinced that their loved ones were murdered to create the circumstances necessary to justify increased security in south Armagh.