He is said to have told friends he is so angry at the prospect of Mark MacGregor and Vanessa Gearson representing the party that he is prepared to quit the Conservative whip and sit as an independent.
Mr Duncan Smith, who failed to deny the claims yesterday, is still bitter at the train of events that led to his removal as Conservative leader, and his replacement by Michael Howard, in November 2003.
Mr MacGregor and Dr Gearson played key roles in the "Betsygate" controversy, which broke as Mr Duncan Smith was battling to shore up his leadership from savage criticism. It was alleged that Betsy Duncan Smith had not done enough to merit a salary as her husband's diary secretary.
The couple were later cleared of any impropriety by a parliamentary inquiry.
Concerns about the payments to Mrs Duncan Smith were first raised in a leaked e-mail by Dr Gearson, who ran the former Tory leader's private office. Mr MacGregor, a former Tory chief executive, also said he had seen no evidence of Mrs Duncan Smith doing work which would have justified her salary.
Both unsuccessfully contested seats at the general election and are believed to have ambitions to stand for the party again.
Mr Duncan Smith's apparent ultimatum to his successor, Mr Howard, was reported by The Sunday Telegraph. A close ally declined to confirm or deny the report yesterday. He said: "We're not commenting at all on the story."
Since his dethronement, Mr Duncan Smith has devoted much of his energy to his Centre for Social Justice, a think-tank pressing the Conservative Party to bring more compassion into its policies.
Although he stood again for Parliament at the last election, and nearly doubled his majority in Chingford and Woodford Green, he has made little secret of his disillusionment with Westminster politics.
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