Seventeen councillors defied the party whip by voting for Linda Hibberd after learning that Nick Tallentire, the council leader, had wrongly linked her name to a fraud inquiry. The split could lead to Labour losing control of the council, paving the way for a three-party coalition in Britain's poorest borough.
Terry Ashton, general secretary of the Greater London Labour Party, said yesterday that the rebellion had been referred to Labour's National Executive Committee, which was already investigating allegations of vote-rigging and the establishment of an unofficial policy-making caucus called the Manifesto Group. Most of the 17 are believed to be members.
Richard Burningham, GLLP spokesman, said: "The rule is clear - if councillors form a group in opposition to the Labour Party than they are automatically excluded from the party."
Correspondence obtained by the Independent provides an insight into why the split took place. It shows Mr Tallentire had told fellow Labour councillors he had "grave concerns" about electing Ms Hibberd, 49, the former deputy mayor, as the borough's first citizen.
Minutes of a meeting of Labour Group officers on 8 May show that he claimed to have been told by the council's chief executive, Tony Elliston, that Ms Hibberd could face questioning by the police after being named in a report into council recruitment fraud, prepared by Ian Macdonald QC.
However, Mr Elliston had written to Mr Tallentire earlier in the day saying: "I can find nothing [in the report] which would appear to be critical of Councillor Hibberd."
Despite this advice, the minutes show that Mr Tallentire opposed Ms Hibberd's automatic nomination as mayor (deputy mayor usually becomes mayor in Hackney).
When Meral Ece, the deputy council leader, wrote to the chief executive, asking why he had given such advice to the council leader, the reply was devastating.
Mr Elliston wrote: "It is completely untrue that I have told the leader that the Macdonald report implicates Councillor Hibberd. In your letter, you state that I am supposed to have briefed the leader on this matter ... I didn't."
After being chosen as the candidate, Sharon Patrick, a former deputy leader, was endorsed by Labour headquarters in south London and members were told, in a letter from Mike Penn, the party's constitutional officer, that they were expected to vote for her.
On Wednesday night, however, 17 Labour members, seven Conservatives, six Liberal Democrats and three independents voted for Ms Hibberd. The remaining 19 Labour councillors voted for Ms Patrick.
Mr Tallentire was not available yesterday. Peter Kenyon, the chief whip, said the minutes of the meeting at which he is supposed to have reported the chief executive's briefing were taken by Ms Ece and were "breathtakingly inaccurate". He said Mr Tallentire never claimed to have been briefed. However, a Labour councillor in attendance, who asked not to be named, said he did.
Further, the Independent has obtained a letter from another Labour councillor, Jane Reeves, to the chief executive, in which she says Mr Kenyon told her: "... in the words of the chief executive to the leader ... I was advised that it would be inappropriate for Linda Hibberd to stand as mayor as she is adversely mentioned in the Macdonald report."
Ms Ece declined to comment other than to say she stood by her minutes.