UEFA's control and disciplinary body is due to meet on Wednesday after the governing body opened disciplinary proceedings over an "illicit banner", which showed images of IRA hunger striker Bobby Sands and Scottish nationalist icon William Wallace along with a set of lyrics that included the line: 'The terrorist or the dreamer?'
UEFA rules prohibit messages of a political and ideological nature being displayed in a stadium.
The supporters' group responsible for the banners, the Green Brigade, insisted they were football-related as they were designed to protest against the Scottish Government's Offensive Behaviour at Football Act and Police Scotland's implementation of the legislation, which they claim has criminalised expressions of Irish politics.
But Celtic chief executive Peter Lawwell demanded supporters leave their political views at home after UEFA announced the action.
And manager Neil Lennon admitted his "heart sank" when he saw the display, arguing it was not the time nor place for such a demonstration.
The club have since moved to separate the group at Parkhead after a number of seats were vandalised, in the section containing Green Brigade members, and pyrotechnics were let off and thrown on the pitch when Celtic beat Motherwell at Fir Park on Friday night.
The club handed "precautionary suspensions" to 128 supporters preventing them from attending home and away matches, while 250 season-ticket holders housed in section 111 - the Green Brigade's corner of Celtic Park - will be moved to other parts of the ground or given refunds on season tickets.