The provision of vital public services could be pitted against the needs of Troubles victims if London fails to part-fund the Troubles pension scheme, Finance Minister Conor Murphy has said.
If the UK government does not provide some financial support, pro-rata cuts would have to be made to departments, he said.
Stormont's Executive Office has formally pledged to pay for a scheme.
The estimated outlay over the next 20 years could be up to £1.2bn.
"If we end up in the situation where the government will refuse to provide some support to us to pay for the victims payments, then the only alternative the executive has to meet those is to take that on a pro-rata basis off departments," Mr Murphy said.
"That is certainly not where we want to go because that pits the provision of vital public services against the needs of victims."
Belfast's High Court heard last week that the Department of Finance will make the necessary funding available to ensure eligible victims and survivors receive compensation.
The case was brought by Brian Turley, one of those known as the Hooded Men, who was seeking a judgement to ensure a financial package was put in place.
Discussions between Stormont and the government's Northern Ireland Office are continuing over whether there will be any additional funding from London to help foot costs.
Mr Murphy told the assembly on Tuesday that £6.7m was set aside for the Executive Office to set up a scheme.
"We have given an undertaking - myself, the first, deputy first and justice minister - that the costs of the scheme will be met this year, and of course the executive position is that those costs should be met by the British government under their own statement of funding policy," Mr Murphy said.
"We intend to continue that discussion with the British government to ensure that they do step up and ensure that those costs are met and I will be engaging with Treasury in the time ahead."
He added: "The idea of top slicing departments would be the last resort and it certainly is not anywhere the executive wants or intends to be."
The pensions scheme was drawn up in 2019 by the UK government, when the Stormont assembly was not functioning.
It aims to provide pension-like payments to victims of the Troubles, every year for the rest of their lives, with payments ranging from £2,000 to £10,000.
Upon their death, a spouse or carer will get the payments for a further 10 years.
Executive avoids underspend
Mr Murphy also said in the assembly that the Northern Ireland Executive has largely avoided an underspend for the last financial year.
There had been concerns that money allocated by the Treasury late in the year would have to be handed back.
However, all available day-to-day funding has now been allocated.
A relatively small amount of capital funding, known as financial transactions capital (FTC), will have to be handed back.
FTC differs from normal capital spending, taking the form of a loan or investment in a private sector project.
Stormont departments have consistently had difficulty finding suitable FTC projects and money is regularly returned to the Treasury as a result.
Mr Murphy said: 'With the exception of FTC lending this should mean that no funding will be lost to the executive.
"However, that is dependent upon departments spending the allocations they have been provided with."
Late allocations to Stormont departments included £175m to health for Covid-19 safety equipment, £35m to education to support a pay rise for teachers and £209m to finance for business support schemes.
Mr Murphy told MLAs: "The final tranche of allocations was agreed on 25 March.
"While unusual to allocate funding at this late stage in the financial year, members will appreciate it was an unusual financial situation as a result of Covid, especially with the drip-feed of funding from London."