The official Sinn Fein Twitter account posted an image of McDonald with the banner at a parade in New York City alongside the caption "No explanation needed."
In response, Ireland's foreign minister Simon Coveney tweeted: "This is NOT leadership -- it's offensive, divisive and an embarrassment -- grow up, this is NOT #ireland in 2019! we are better than this!"
Unionist politicians also criticized McDonald over the banner.
"When slogans such as "Brits out" or "England out of Ireland" are used, the unionist community are well within their rights to see themselves as the intended focus," said Gregory Campbell, the Democratic Unionist Party MP for East Londonderry. "The 'British presence in Ireland' is the unionist population in Northern Ireland."
Nuala McAllister, a councilor for the Alliance party and former Lord Mayor of Belfast, called on McDonald to apologize.
"Leaving aside the irony of St Patrick being a Briton, this sort of anti-English, anti-British sentiment is just as repulsive as anti-Irish, anti-immigrant prejudiced views -- they are two sides of the same coin," McAllister said in a statement.
Ulster Unionist Party Leader Robin Swann said the banner was "highly offensive."
"It demonstrated that bigotry and hypocrisy were alive and well within their version of republicanism," Swann said in a statement. "Sinn Fein is a narrow-minded party still guided by the shadowy figures from our dark past."
Sinn Fein fired back at critics and claimed that it should be no surprise the party is campaigning for a new United Ireland under the terms of the Good Friday Agreement.
"The faux outrage of some of our political opponents owes more to the silly season of a holiday weekend and petty political point scoring," a Sinn Fein spokesperson said in a statement.
"However if Simon Coveney and the government is serious about achieving a new and agreed United Ireland then he should immediately convene an all-Ireland forum on Irish unity."
St. Patrick's Day events are taking place in both Northern Ireland and the Republic of Ireland, with more than 500,000 people expected to attend a parade through Dublin.
Extra police are on duty in the main student district of Belfast after St. Patrick's Day disorder in recent years.
Irish Prime Minister Leo Varadkar is in Chicago, Illinois, where he marched in the same St. Patrick's Day parade as MMA star Conor McGregor.
McGregor is currently on bail in the US accused of smashing a fan's phone in Miami, and Irish media described his appearance alongside Varadkar as a PR disaster for the Prime Minister.
Varadkar told reporters he didn't know McGregor would be there.
The Irish PM is currently on a visit to the US during which he has met with President Donald Trump and Vice President Mike Pence.
Pence hosted Varadkar and his partner at the Naval Observatory for the Friends of Ireland breakfast on Thursday.
Varadkar is one of only a handful of state leaders globally who identify as gay, and Pence's support for the LGBT community has been called in to question throughout his political career.
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