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.