Police have said that a 500lb bomb left in a van under the main Belfast to Dublin road near Newry may have been destined for a town centre.
Chief Superintendent Alasdair Robinson said the device, which was stored inside a wheelie bin, was "sophisticated and substantial".
He said that it could have caused huge devastation and loss of life.
The major alert was less than a week since the murder of PSNI constable Ronan Kerr in Omagh, County Tyrone.
Police believe that the van containing the bomb was abandoned in the underpass because of increased police activity in the wake of the murder last Saturday.
Army bomb experts carried out several controlled explosions on the vehicle on Friday night.
The alert began shortly before 2300 BST on Thursday after two bomb warnings were received by the Daisy Hill Hospital and a charity.
The same codeword has been used before for both real and hoax bomb warnings.
It has also been revealed that the van was stolen in Maynooth in the Irish Republic in January.
Police have refused to be drawn on which organisation was responsible.
On Friday morning, cones blocking the underpass were removed and hundreds of motorists drove past the vehicle.
Police warned motorists ignoring or moving cones that they had a "blatant disregard" for safety.
On Saturday, Chief Superintendent Robinson said it was "unfortunate" that, while police were absent from the area, motorists had the opportunity to move the cones and drive past the van.
However, he added that even when police were present, one motorist still tried to drive through the cordon and had to be stopped by officers.
Acting NI Policing Board chairman Brian Rea said the "pure purpose" of the bomb was "death and destruction".
"The public and political revulsion at the murder of Constable Kerr clearly shows that the people of Northern Ireland do not want any more devastation inflicted on our community and our police service.
"I would urge anyone with information on this van bomb or last week's murder to bring it to the police."
The road has now reopened.
Meanwhile Sinn Fein president Gerry Adams has reiterated his call for dissidents to meet his party for talks.
Writing on his blog, he said that republican heartlands were "seething with anger" following the recent murder of Constable Kerr.
"The people of this island demand that you stop," he wrote, addressing dissident republicans.
"I am prepared to meet you anywhere at any time to listen to what you have to say and to tell you that there is now a democratic peaceful way to unite our people and our country on the basis of equality."