Traditional Unionist Voice leader Jim Allister, who represents the area at the Northern Ireland Assembly, expressed his horror at the invitation and called on the country's Environment Minister Alex Atwood to intervene. Mr Atwood said he would be monitoring the situation in Moyle.
The TUV have also written to the British Home Office. Mr Allister said: "It is apparent that the Moyle council chairman is operating outside his remit and has mired the local council in a matter of international politics."
Cllr McShane, who was a Sinn Fein representative but is now Independent, is believed to have suspended his invitation to bring a delegation from Gaza to sign the twinning arrangement. The council is currently seeking legal advice on how to proceed.
Cllr McShane said he had informed the council about his plans and there had been no objections. He said all the Gaza councillors supported a peaceful solution to the conflict and that it was "a humanitarian gesture to the people alone".
But in his invitation, Cllr McShane made his political intentions clear, writing: "This twinning endeavour has the potential to realise the impact of the illegal blockade on Gaza. We in Moyle plan to use the twinning project to highlight the illegal siege under international law." Unionist councillors in Moyle have repeatedly asked Cllr McShane to drop the twinning agreement.
Steven Jaffe, co-chair of Northern Ireland Friends of Israel said: "Twinning with the Hamas administration of Gaza should be unacceptable to Unionist and Nationalist alike.
"Sinn Fein have confirmed to me they do not support Hamas and the Unionist parties oppose the twinning.
"Is Councillor MacShane neutral about Hamas's call to destroy Israel and kill the last Jews in hiding? Why is Moyle District Council honouring an authority which imprisons homosexuals and severely restricts the rights of women?"
