Ombudsman Nuala O'Loan is being threatened with legal action by representatives of senior officers and rank and file members of the police force in the North.
The Police Association said they intend to apply to the High Court for a judicial review of her report which was critical of the investigation and Chief Constable Sir Ronnie Flanagan's leadership.
The body, which represents all 11,500 officers belonging to the new police service, claim her report was inaccurate and unfair.
It says she had failed to take steps to right the wrongs which they felt had been done.
Chairman Jimmy Spratt declared: "It is a matter of deep regret to the police association that it should have to resort to legal proceedings. Unfortunately there seems to be no alternative."
With a senior British officer being called in to oversee the inquiry which is now being headed up by two detectives with equal status, some of the families claimed the move had failed to raise lingering hopes of finally bringing the terrorists to justice.
The Northern Ireland Policing Board recommendations which fell short of Mrs O'Loan's call for an outside officer to take total charge of a fresh investigation with a completely new team, are to be considered by the relatives next week.
But Kevin Skelton, whose wife Philomena was among the 29 people killed in the August l998 atrocity, declared: "Everything humanly possible should be done to bring these people to justice, but the way they are going about it I see no prospect of that happening."
An assistant or deputy Chief Constable from Britain is to be appointed to oversee and quality assure the inquiry, and he will report to the policing board. He will have no operational control.
The advisory role of Detective Chief Superintendent Philip Jones from Merseyside, who was appointed by Sir Ronnie Flanagan, the Northern Ireland Chief Constable, has been upgraded and he will now work alongside Superintendent Brian McArthur who retains operational command.