The move, which has been under discussion for some weeks, was given additional impetus by Mr Major's declaration of non-cooperation with the EU last week because of the ban on British beef exports. One source said: "The reaction of newspapers like the Daily Mail, the Daily Express and the Sun really shook people. It revealed a xenophobic hysteria which many opinion-formers fear."
Conservative Mainstream will be an umbrella organisation for pro-European and left-wing groupings both inside and outside Parliament. At Westminster these include the 50-strong Macleod Group of MPs, and two dining clubs, Nick's Diner and the Progress Group. Also involved will be the Tory Reform Group, which has more than 2,000 members, mainly away from Westminster, and the Action Centre for Europe, a business-backed group made up largely of Tories, whose president is Lord Howe, the former Foreign Secretary.
The pro-Europeans have long envied the organisational ability of the Euro-sceptics who have succeeded in setting the agenda even though they are divided into several camps.
Like the Euro-sceptic "Great College Street" group, Mainstream will have offices at Westminster, in this case in Abbey House in Abbey Orchard Street.
Funding is expected from the Sainsbury family and from the Rowntree and other trusts. Sources said that, with business taking fright over the direction of Conservative policy, funding is "not a problem". Organisers plan a conference, to be held before the party's annual conference in Bournemouth this October. This will help to draw up proposals which will be submitted to the party hierarchy for the election manifesto.
The new "grand alliance" of the Tory left will work through issues other than Europe, including social policy, flexible labour markets and the balance between public and private provision. It will also act as a base from which left-wing "one nation" Tories can operate.
Its organisers say it could play a crucial role after the election in influencing a leadership campaign if the Conservatives lose and Mr Major steps down. They also hope it will demonstrate to people inside and outside the party that the Conservative left still has a big role to play.
The move came to light amid growing signs of unease within Conservative ranks over the drift of government policy on Europe. Around 25 MPs, including the former prime minister Sir Edward Heath, are said to be deeply critical of Mr Major's beef initiative.
One described it as "an appalling situation", another said that business leaders are "seriously worried" about the anti-European trend.
In an interview in yesterday's Financial Times, Douglas Hurd, the former Foreign Secretary, said British foreign policy had now lost all influence over Germany, the country's most powerful European partner.
Mr Hurd said the German reaction to Britain now is: "We don't know what you are saying. You are very important. You will stay very important. But there's no dealing with you. There's no point in considering British ideas."
In an interview last night on Channel 4's A Week in Politics, Sir Leon Brittan, vice president of the European Commission and a former Conservative Home Secretary, warned Mr Major against fighting an election on a flag- waving platform. He said: "I do not believe that playing an anti-European card is going to be an election-winning gambit and I think it is a dangerous one to do."
The political fallout from the "beef war" remains unclear. 61 per cent of voters back the policy of non-cooperation with Europe, but more than half of the electorate blame the government for the beef crisis, according to an ICM telephone poll of 532 people in today's Observer.
Inside Story, pages 16-17
Alan Watkins, page 19