The decision by senior party figures to back the flamboyant Mr Banks came as Mr Livingstone vowed yesterday to continue his fight for the post with a US-style "write-in" campaign.
The former leader of the Greater London Council said he would urge all 69,000 members of the London party to write his name on the ballot paper of any selection contest, even if he was barred by the party from standing.
Mr Livingstone's defiance followed the decision of the board of the London Labour Party to create a vetting panel to draw up a shortlist for the mayoral elections in 2000.
The bookmaker William Hill installed Mr Banks and the Transport minister Glenda Jackson as 7/2 joint favourites. Mr Livingstone's odds lengthened from 5/2 favourite to 5/1.
Although the Labour leadership wants to avoid making public its backing for any one individual's candidacy, it emerged last night that Mr Banks has the support of several ministers and party officials. His allies believe that Mr Banks, who was chairman of the GLC from 1985-86, has the charisma, ministerial experience and London background needed to win the race.
Two polls published yesterday confirmed Mr Livingstone's popularity in London.
A BBC poll of constituency party secretaries found he had three times as much support as any other contender, while a Carlton TV survey found 90 per cent of the public wanted him on a shortlist.
With Millbank officials making clear that Mr Livingstone is now effectively ruled out of the contest, Mr Banks is likely to pick up the Brent East MP's grassroots support.
Both men worked closely together during their time together at County Hall and have made no secret of their continuing friendship as MPs.
"Tony will certainly get on the shortlist and although he has sensibly kept a low profile so far, has a great chance of winning," a senior source said.
However, Mr Livingstone yesterday refused to give up his own campaign and called for the selection panel to meet in public.
"If it's not in public, and privately a little cabal veto my name, I am going to be organising a write-in campaign," the MP said.
"If you nobble a horse race and you get caught you get sent to prison. Why do we have such a lax standard to the way we conduct our elections?
"I won't campaign against the official Labour Party nominee, but I'm going to fight down to the wire to be that nominee. A write-in ballot will be just as telling as a rigged ballot."
The write-in tactic, which is popular in the United States, would cost about pounds 20,000 and if successful could severely embarrass Tony Blair.
Jim Fitzpatrick, chair of the London Labour Party and MP for Poplar and Canning Town, insisted that the board had merely brought the selection process for the mayoral candidates into line with that used in other selections.
"I think it's arrogant that anybody thinks they should be automatically placed in a position where they will be able to determine that they will be our candidate," he said.
Mr Fitzpatrick warned that Mr Livingstone would be disadvantaged by his original criticism of the very idea of an elected mayor for London and his attacks on government economic policy.
Party sources confirmed that it was unlikely that any candidate would be in place before next autumn, at the earliest.