The North Down MP also claimed the legislation is in breach of Article 2 of the European Convention on Human Rights.
Mr Farry said: “It does not uphold the rule of law, and is not capable of delivering justice and reconciliation. The government’s approach on legacy has been irresponsible and disingenuous.”
He said the bill is “framed around a flawed narrative of vexatious investigations against veterans that does not stand up to scrutiny”.
The government’s proposed law was “being imposed upon the people of Northern Ireland in general and upon victims specifically”, he said.
The Alliance MP continued: “At its heart is a de facto amnesty for perpetrators. The proposed processes do not have the independence or rigour to be compatible with Article 2 of the European Convention on Human Rights.”
He added: “The only viable way forward is to return to the Stormont House Agreement. It has never been given a chance. Engagement between the two governments and local parties alongside other core stakeholders, should be able to agree the necessary tweaks to allow it to be legislated for and then implemented.”
SDLP leader Colum Eastwood claimed the government was trying to spin that the legacy legislation was designed to promote reconciliation which he said was “an out and out lie”.
Speaking in the Commons Mr Eastwood outlined cases where victims of the IRA, UVF and British Army would be denied justice.
Mr Eastwood said: “This legislation is about protecting the British state and preventing the prosecution of state forces.
“The hard truth is that British soldiers and paramilitaries alike who committed murder in Northern Ireland will be shielded from justice by this legislation.
“It has no political support, no support from victims and no support from human rights bodies in the North.”
The Foyle MP said it was yet another “unilateral move” by government which the SDLP will oppose through every stage of the parliamentary process.