The Democratic Unionists and Ulster Unionists said their action against the ruling by the Parades Commission adjudication body was the first stage of a "graduated response" - raising the spectre of more steps that could further rock the already faltering institutions at Stormont.
"Political action in tandem with peaceful and lawful protests is the path we must follow," the parties said in a joint statement endorsed by a range of smaller unionist and loyalist parties in the region, including two with links to paramilitary groups.
The Government-appointed commission cited the potential for public disorder and negative impact on community relations among its reasons for preventing the contentious July 12 evening parade proceeding along north Belfast's Crumlin Road, which is next to the nationalist Ardoyne neighbourhood.
In recent years when it was given permission to pass the Ardoyne, republicans rioted.When it was banned last year, loyalists rioted in the nearby unionist community in Woodvale.
Loyalists have manned a protest camp at the volatile community interface ever since.
The political talks at Parliament Buildings in Belfast among the five parties in the executive collapsed on only their second day.
They were established by DUP First Minister Peter Robinson and Sinn Fein Deputy First Minister Martin McGuinness in an effort to break the impasse on disputes over parades, flags and the past.
DUP Assembly member Jonathan Bell said: "It's been a very difficult morning. The Parades Commission has set a very dangerous precedent - they have caved in to republican violence, the threat of republican violence and stated that violence pays." UUP negotiator Tom Elliott rejected the suggestion that unionists had 'thrown their dolls from the pram'.
"A lot of people feel let down by what the Parades Commission has done, a lot of people feel hurt," he said.
As it did last year, the commission has given permission, with restrictions, for Orangemen to parade down the disputed section of the Crumlin Road on the morning of July 12.
It is the evening parade, when Orangemen return from traditional 'Twelfth' commemorations elsewhere in Belfast, that has been prohibited from passing along the road.
While unionists are characterising their walkout as an attempt to channel community anger through peaceful means, political rivals at Stormont were scathing about the decision to collapse negotiations.
Mr McGuinness said unionists needed to explain exactly what "graduated response" meant.
"I hope it doesn't mean a threat to the institutions," he said.
"I have made it clear that these institutions have provided very important stability."
He added: "I tell it as it is. I think there is an awful lot of scepticism and indeed cynicism out there in regard to the willingness of unionist parties and the Orange Order to come to an agreement."
Unionists, who have also cut ties with the Parades Commission, were clearly preparing themselves for the course of action, as a lengthy statement outlining their intentions was circulated minutes after the north Belfast ruling was issued.
The statement was sent in the name of DUP leader Mr Robinson, UUP leader Mike Nesbitt, Traditional Unionist Voice leader Jim Allister, Progressive Unionist Party (PUP) leader Billy Hutchinson and Ian McLaughlin of the Ulster Political Research Group (UPRG). The PUP has links to the paramilitary Ulster Volunteer Force (UVF) while the UPRG would have a similar political advisory role in respect of the outlawed Ulster Defence Association (UDA).
SDLP leader Dr Alasdair McDonnell said he was disappointed by the unionist response and called for calm.
"There is now a desperate need for people to keep calm and provide leadership in our communities. Being difficult and being angry is not going to help anyone," he said.
"The SDLP wants to make sure that the next two weeks pass off peacefully in a way that does not damage our city or our people."
Alliance party leader David Ford launched a blistering attack on the main unionist parties.
"I am horrified and disgusted by the behaviour of the DUP and Ulster Unionists," he said.
"They talked about the importance of these talks to resolve the outstanding issues that plague our community and, on a whim today, absolutely unrelated to the business in the talks, they have walked out."
Northern Ireland Secretary Theresa Villiers said the last thing the region needed was another outbreak of public disorder. She said it was "very disappointing" that the DUP and UUP were not continuing in the talks.
"The Parades Commission ruling and subsequent political developments today will provoke strong feelings from many in Northern Ireland but it is essential that the rule of law is respected in any reaction to what has happened," she said.
"The last thing Northern Ireland needs is any kind of public disorder which could put police officers at risk of injury or worse and which would damage Northern Ireland's reputation abroad and undermine efforts to attract jobs and investment.
"Any reaction or protest needs to be both peaceful and lawful, as called for by unionist leaders in their statement today."