Thirty-nine Labour councillors were told by the party's National Executive Committee that they would have to sign special declarations before they would be allowed to rejoin. There were indications last might that around half would rather be expelled than toe a party line they consider unacceptable.
A proposal to disband the group was passed "on the nod"following a split last week when 17 out of 36 voting Labour councillors teamed up with Conservative and Liberal Democrats to vote down the party's official candidate for mayor.
It was the last straw for the NEC, which has spent months investigating the group over allegations of dirty tricks, vote-rigging and the disputed formation of an unofficial caucus called the Manifesto Group.
Richard Burningham, Labour's general secretary for Greater London, said the group would be disbanded rather than suspended and would be invited to re-join next week when members would be presented with a declaration re-affirming the party's rules and standing orders.
"If anyone refuses to sign, then they are out, expelled," he said. That could leave the way open for a hung council - something many councillors believe the national Labour party would welcome. Taking Hackney out of its control would remove a major embarrassment.
The group will be re-formed around four officers: Nick Tallentire, the Council Leader, Julie Grimble, the group's secretary, Bill Leadbitter, its chairman, and Peter Kenyon, the chief whip.
Mr Burningham confirmed the declaration to abide by party rules would also include points specific to Hackney, points that many of those disbanded may find unpalatable.
"Some draft standing orders have been proposed by Peter Kenyon which included the Labour Party model and some other conditions he considered desirable," said David Phillips, one of the rebels who has been earmarked separately for suspension by the NEC.
"We have said we would want a collegiate debate over whether or not they are reasonable. However, if they are simply going to be imposed as a condition of rejoining, then I think the majority of the group will find that very difficult to stomach."
He said expelled councillors had no intention of forming an opposition group and he described the Manifesto Group as "a myth".
Mr Burningham said there was no question of the declaration being drawn up only by Mr Kenyon.
Mr Tallentire said the NEC's decision vindicated his actions over recent months in his dispute with his fellow councillors.