The naming of the park in Newry after Raymond McCreesh has been controversial since the park opened in 2001.
In 2012, Newry and Mourne District Council reviewed the move and decided the name would remain.
But the Equality Commission has now rescinded its approval of that review.
It said the council, which has since been expanded and renamed as Newry, Mourne and Down District Council, failed to fully comply with its recommendations on the review process, specifically on transparency.
McCreesh, from Camlough in south Armagh, was one of 10 IRA prisoners who died in a hunger strike in the Maze Prison in 1981.
His convictions included attempted murder, conspiracy to murder, possession of firearms with intent to endanger life and IRA membership.
The council owns the park named after him and has debated its naming on several occasions.
Last year, the Equality Commission said it was disappointed by the council's decision in 2012 to retain the park's name.
But it accepted - at that stage - that the council had complied with its recommendation on the review process that should be used.
A short time later, a woman, whose son was murdered by the IRA at the Kingsmills massacre in County Armagh in 1976, launched a legal challenge against the council's decision.
Bea Worton was granted leave for a judicial review of the move.
That has resulted in the Equality Commission issuing a new directive to the council.
Dr Michael Wardlow, the chief commissioner, said the council's debate and vote on the matter should be conducted in public and properly recorded to ensure its transparency.
Dr Wardlow also said councillors should be provided with analysis of the consultation responses prior to the debate and vote.
The Equality Commission said it is now up to Newry, Mourne and Down District Council to look again at the issue.
A council should debate and vote again on the naming of a public play park in County Down after an IRA member, as a previous process was not transparent, an equality watchdog has said.