Mr Tatchell, a member of the OutRage! campaign group, had threatened to dog the former defence secretary's campaign for the ultra-safe Tory seat by standing as an independent. He has decided not to do so because it would have meant instant expulsion from the Labour Party, of which he has been a member for many years.
Party sources denied that anyone had coerced Mr Tatchell into his decision but admitted he had been approached by homosexual Labour Party members who asked him not to get involved with the campaign.
It is understood that Stephen Twigg, the homosexual MP for Enfield Southgate, who defeated Mr Portillo in the 1997 general election, was among those who let Mr Tatchell know that his "love of the limelight could help Portillo". A Labour Party insider said: "It was put to him that the course he was embarking on was counter-productive. Portillo was preparing to be a victim and the prospect of having `noisy oiks' shouting at him was manna from heaven."
Labour campaigners and members of the Kensington and Chelsea party have pointed out that the views of the official Labour candidate Robert Atkinson on Clause 28, homosexuals in the military and the age of consent are broadly similar to those of Mr Tatchell.
He first said he would take part in the campaign after Mr Portillo beat three short-listed rivals to win the nomination to contest the seat, which became vacant on the death of the late Alan Clark.
Mr Portillo's selection victory came only months after he said that he had had "some homosexual experiences as a young person" - a move seen as an attempt to wipe his slate clean before a probable Commons comeback, amid rumours that many Tories saw him as a challenger for William Hague's leadership.
The local Labour party is keen to ensure that Mr Portillo's announcement does not become a factor in the by-election campaign, insisting that they have a "political case" against the former cabinet minister.
One key area, which has emerged in their election strategy, is to highlight Labour's commitment to reforming leasehold, since 30 per cent of voters in the constituency live in leasehold properties.
Party insiders hope the measure will be included in the Queen's Speech on Wednesday. The by-election will be on 25 November.Reuse content