It is the first time that a Cabinet minister has fully ruled out making the payment -- a move that is sure to heap major pressure on the upcoming negotiations relating to Ireland's promissory note.
Mr Rabbitte emphasised that this so-called "IOU" was agreed by the last Government and could simply not be fulfilled.
"[The Government] didn't pay the promissory note this year and as far as I'm concerned we're not going to pay it next year. It's as simple as that," he said. "We can't pay. This was an IOU entered into by the previous Government when the Anglo Irish Bank collapsed and the notion of us paying it next March doesn't arise.
"The ECB is a difficult institution to bring around to stamping the deal that we need but I believe that we will get that deal and I believe that we will get it before it falls due in March."
Negotiations between Ireland and the European Central Bank (ECB) are set to intensify over the coming weeks with the Government determined to reduce the cost of winding down the toxic institution.
The current rules governing Ireland's bank debt state that a March 31 deadline is in place for the repayment of €3.1bn.
However, both the Department of Finance and the Department of An Taoiseach confirmed that Mr Rabbitte's remarks were in line with Government policy.
Asked whether a new deal would require Ireland to accept a second bailout, Mr Rabbitte told RTE's The Week In Politics: "Personally, I don't think it is as stark as that because we didn't pay the promissory note this year and as far as I am concerned we are not going to pay it next year. It's as simple as that."
Government figures believe a new deal is crucial because the overall €31bn Anglo debt is adding €1.9bn onto the State's massive interest bill next year.
The Government managed to avoid paying a €3bn instalment in March by swapping the payment for a long-term Government bond.
However, the ECB president Mario Draghi suggested recently that the refusal to pay the next instalment could be illegal.
Mr Rabbitte's comments are also sure to soften up Government backbenchers, who are deeply dissatisfied with some of the measures contained in Budget 2013.
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