The UK internal market bill represents a “significant breach of obligations” under the withdrawal agreement, according to SDLP leader Colum Eastwood.
The Foyle MP said the legislation “fundamentally and fatally” undermined the NI Protocol, and trust between the UK and EU negotiators.
The UK bill modifies the Brexit deal signed in January.
Mr Eastwood said it conferred “pariah state status” on the UK government.
Prime Minister Boris Johnson said the bill would “ensure the integrity of the UK internal market”.
One of the proposals is for no new checks on goods moving from Northern Ireland to Great Britain.
“The UK Internal Market Bill represents a severe abdication of the clear obligations that this government freely undertook less than a year ago,” he said.
“This piece of law, in its current state, will confer pariah state status on Boris Johnson’s government, putting to rest any argument about the value of free trade agreements with other countries because no- one will want to deal with a man or a government with such an adversarial relationship with the truth.”
The SDLP leader said he would “work in coalition with progressive parties at Westminster to undo the immense damage threatened here”.
Speaking earlier at the Northern Ireland Affairs Committee, Lord Hain criticised NI Secretary Brandon Lewis, who told the Commons on Tuesday that the government would be breaking international law in a “specific and limited way” with the new bill.
The Labour peer, a predecessor in the role, said Mr Lewis needed to behave like an honest broker by “obeying the law”.
“If he says he’s prepared to break international law, why would anybody else think he would uphold the Good Friday Agreement which is itself subject to international law as it forms part of a treaty,” he said.
Northern Ireland’s most senior judge Sir Declan Morgan told the BBC that Mr Lewis’s comments “may well undermine trust in the government, and certainly might undermine trust in the system of the administration of justice”.
In an interview for BBC Northern Ireland’s The View programme, the lord chief justice said the NI secretary’s comments had left him feeling uncomfortable.
“It seems to me that it enables others to take the view that they can choose which laws apply to them,” he said.
The public must have confidence that the law “will be applied as it is, and that it will be applied with integrity and independence”, he said.
He added: “Where there is an indication that a state intends to break international law, it seems to me that it may have a domestic effect on the confidence that the public may have in the legal system generally”.
‘Bad for NI’
Ulster Unionist leader Steve Aiken said the bill provided “little comfort” to those opposed to the withdrawal agreement.
Northern Ireland consumers and business “deserve a level playing field with the rest of the United Kingdom,” he said.
“What has been presented does nothing to address the very fundamental issue of the importance of the continued free movement of goods within our own country from Great Britain to Northern Ireland.”
Mr Aitken added that the NI Protocol was “an attack on the Belfast Agreement and our country`s sovereignty”.
DUP Brexit spokesman Sammy Wilson said while a number of issues were still to be addressed the internal market bill was a “step forward”.
The withdrawal agreement was “bad for Northern Ireland both economically and constitutionally”, he said.
He said the new bill was “a recognition by the government of the defects of the Northern Ireland Protocol and its potential impact on the internal market of the whole of the United Kingdom but more work is required”.
The bill “sets out potential helpful steps” in ensuring Northern Ireland businesses have unfettered access to the Great Britain market.
He stressed to the PM that the UK government should re-engage with EU negotiators “urgently”.
The full interview with the Lord Chief Justice Sir Declan Morgan will be broadcast on The View on BBC One NI at 22:40 on Thursday 10 September and on BBC iPlayer.