A report from the Northern Ireland Council for Voluntary Action, published last week, calls for a massive injection of European Union cash to the sector to promote reconciliation between increasingly divided loyalist and nationalist communities.
Nicva says a successor to the £780m Peace II programme, which finishes in 2006, is desperately needed. But rather than supporting economic development, as the current programme does, it should focus on peace building.
"This is needed because Northern Ireland society remains divided and segregated in its patterns of living, housing, education and services, and sectarian attitudes remain entrenched," said Nicva chief executive Seamus McAleavey.
"We have worsening community relations and a retreat into single identity living, paramilitarism remains a problem, and even young children display sectarian attitudes."
The report, entitled Designing Peace III, by Nicva and the Community Workers Cooperative, says that 15 per cent of six-year-olds in Northern Ireland make sectarian statements, and that the number of people wanting to live and work in mixed areas is at an all-time low.
"Clearly, there is still a huge amount of peace and reconciliation work still to do, much of which can best be undertaken by voluntary and community organisations," McAleavey added. "It cannot be said that the consequences of the Troubles have yet been fully undone."
A decision on whether there will be a Peace III programme in Northern Ireland is expected to be made by the European Commission in the summer.
A Nicva spokesman said there was "clearly a huge need" for more funding from the European Union. In the interim between the EU's Peace I and Peace II funding programmes in 2001/2, many groups went to the wall.
The report says the programme should be extended to the Irish Republic and involve joint projects with other countries in the EU that have conflict problems.