Home Secretary Yvette Cooper has said she will proscribe Palestine Action under anti-terror law.
It comes days after activists from the group broke into RAF Brize Norton in Oxfordshire and spray-painted two military planes red - an incident Cooper called "disgraceful".
The move effectively brands the group a terrorist organisation and, if passed in Parliament, would make membership of and support of the group illegal.
Palestine Action called the governments action "unhinged".
Coopers announcement came as the group held a protest in central London, with hundreds in attendance and 13 arrested as scuffles with police broke out.
Declaring her intention to ban the group, Cooper said Palestine Action had a "long history" of criminal damage, and since 2024 "its activity has increased in frequency and severity".
"The UKs defence enterprise is vital to the nations national security and this government will not tolerate those that put that security at risk," she added.
The group targets "financial firms, charities, universities and government buildings," Cooper said.
"Its activities meet the threshold set out in the statutory tests established under the Terrorism Act 2000."
She said the measures are specific to Palestine Action and do not affect lawful protest groups and others campaigning about the Middle East.
"It is vitally important that those seeking to protest peacefully, including pro-Palestinian groups, those opposing the actions of the Israeli government, and those demanding changes in the UKs foreign policy, can continue to do so," Cooper said.
Cooper said several acts of serious damage by Palestine Action since its creation in 2020 had cost "millions of pounds".
The groups website states it is a "direct action movement" that uses "disruptive tactics" to target those who support Israels military campaign.
In 2022, the group broke into Thales defence factory in Glasgow, causing £1,130,783 in damages using pyrotechnics and smoke bombs.
Cooper also referenced two incidents last year, when Palestine Action members broke into both the Instro Precision factory in Kent and the Bristol HQ of Elbit Systems UK.
Counter-terrorism police are leading the investigation into Fridays incident at Brize Norton.
Armed forces minister Luke Pollard said the break-in was "not only epically stupid, but it was also a direct attack on our national security."
In a statement on the protection of UK military bases on Monday, Pollard told MPs: "I can confirm two RAF Voyager aircraft were damaged by paint, but there was no further damage to infrastructure or assets, nor has there been any impact on planned operations from Brize Norton".
He said a similar incident "must never happen again" and added that "enhanced security measures across the whole of defence have been put in place since Friday".
In a statement, Palestine Action said: "The real crime here is not red paint being sprayed on these war planes, but the war crimes that have been enabled with those planes because of the UK governments complicity in Israels genocide."
"We are teachers, nurses, students and parents who take part in actions disrupting the private companies who are arming Israels genocide, by spray painting or entering their factory premises. It is plainly preposterous to rank us with terrorist groups like ISIS, National Action and Boko Haram," it said.
"We have instructed lawyers who are pursuing all avenues for legal challenge."
Israel has strongly denied allegations of genocide relating to the ongoing war in Gaza.
Cooper will lay the draft order before Parliament next week.
If passed, the ban would make it a criminal offence to belong to or support the group, punishable by up to 14 years in prison.
Shadow defence secretary James Cartlidge said the incident was "not vandalism, this was sabotage".
Speaking in Parliament, he called for those responsible to face "consequences" and asked how it had been allowed to happen.
Former Scottish First Minister Humza Yousaf told the BBCs Scotcast podcast that Coopers action to ban Palestine Action was a "shameful abuse of anti-terror legislation".
He said it was an "utterly ludicrous overreaction" in an attempt "to intimidate and ultimately silence protestors and pro-Palestinian protesters".
Nadia Whittome, Labour MP for Nottingham East, said the move set a "dangerous precedent, which governments in future could further use against their critics."
Chancellor Rachel Reeves condemned Palestine Actions behaviour as "totally unacceptable".
"To cause damage to military assets, but also to cause such damage to privately owned assets, it is unacceptable whatever your views are on whats happening in the Middle East," she said ahead of Coopers statement.
Ahead of the home secretarys announcement, hundreds of protesters met at Trafalgar Square after police banned Palestine Action from protesting outside of Parliament.
Organisers made the last-minute venue change after Scotland Yard enforced an exclusion zone across much of Westminster.
Metropolitan Police chief Sir Mark Rowley said while the force had no legal power to stop the protest, they would impose conditions "robustly".
Charing Cross, next to Trafalgar Square, was blocked for a time as the protesters gathered.
Some supporters of the group waved Palestinian flags and carried placards, with other protesters chanting: "We will not be silenced."
The protest was required to end at 15:00 BST, when police moved in to disperse the crowd.
The Met Police said it made 13 arrests at the protest.
Six of these were for assaulting an emergency worker, one for a racially aggravated public order offence, four for refusing to disperse, and two were for obstructing a constable in the execution of their duty, the Met said.