Dissident republican party Saoradh are planning the commemoration for Edward Grant and Brendan Quinn who died when a premature explosion killed them outside a bar on Monaghan Street in 1973.
The bomb also killed 18-year-old Aubrey Harshaw who was delivering a message to the bar when the bomb detonated.
Saoradh have been linked to the dissident republican group the New IRA and described by the PSNI as the “voice” of the terror organisation.
The group faced a backlash after a New IRA gunman shot and killed journalist Lyra McKee in Londonderry in April.
Larne FC suspends player John Herron after he was spotted on camera wearing ‘tiocfaidh ar la’ assault rifle top
Irish republican rebel band Wolfe Tones lead giant Belfast crowd in singing Up the Ra ‘on the same night as singing Give Peace a Chance’
Feile organisers asked if they have warned Wolfe Tones about leading young people in pro-IRA chants
‘He needs to leave our club NOW!’ Strong reaction Larne FC’s John Herron being pictured in ‘tiocfaidh ar la’ gun top as club suspends him
Irish language group Kneecap accused of ‘grooming sectarian hatred’ with Feile mural
The annual memorial service was condemned by Newry and Armagh DUP MLA William Irwin, who said the bomb “targeted families doing their Christmas shopping”.
“An 18-year-old innocent lad lost his life in this explosion and more than 30 were injured,” he added.
“It was Christmas Eve. Only a warped person would plant a bomb in a bar on any day of the year but it takes a really wicked and depraved character to plant a bomb on Christmas Eve.
“This bomb did not target soldiers. No one should be deprived from remembering the death of a loved one but the act that these young men were perpetrating should not be glorified or celebrated.
“To do so sends an utterly confusing message to this generation of young people. Bombing and shooting never achieved anything other than broken families and broken hearts on all sides.”
The commemoration was also condemned by UUP councillor for the area David Taylor, who branded it “distasteful”.
“I would not come to expect anything else from this organisation,” he added.
“My thoughts will be with the family of Aubrey Harshaw who very sadly lost his life as a consequence of the actions of the two terrorists Saoradh seek to commemorate.
“I have no doubt the wider community will ignore the event as any attempt to commemorate the actions of terrorists is completely wrong.
“Anyone involved in terrorist activity is committing evil crimes and such actions should not be celebrated in any way.”
Saoradh’s Newry representative Stephen Murney said: “Edward Grant from Derrybeg and Brendan Quinn from Cloughreagh were both tragically killed in a premature explosion on Christmas Eve 1973.
“The volunteers were on IRA active service when an improvised explosive device which they were handling detonated prematurely resulting in the deaths of both young volunteers.
“Tragically, the same bomb also claimed the life of a civilian.
“Join with Saoradh An Iúir and remember two gallant and fearless IRA soliders.”
The service will begin at noon on Christmas Eve at Derrybeg Martyrs Monument.