Senior officials at the party's national headquarters said they were prepared to expel members who voted for the unofficial candidate, leaving the way clear for a coalition of Liberal-Democrats, Conservatives and disaffected Labour members to take power.
The split was expected to come after Labour members of an unofficial caucus known as the Manifesto Group paved the way for a report into recruitment fraud in the London borough to be "neutered".
The report, prepared at a cost of pounds 70,000 by Ian Macdonald QC, alleged that the borough's controversial housing director Bernard Crofton, a man who had been feted in the media as a "fraudbuster", had lied in order to retain his job. Mr Macdonald recommended that the police be called in.
The council's chief executive, Tony Ellison, was instructed to look into allegations against Mr Crofton and a decision was taken not to publish the report.
"This will effectively neuter the report," said one senior Labour councillor.
The Labour split, largely based on support and opposition for Mr Crofton, came to a head last week when manifesto members boycotted the Labour group annual meeting. The national party forbade members from voting for new committee chairmen, instructing them instead to vote only for a mayoral candidate, Sharon Patrick.
Manifesto, some of whose members Mr Macdonald thought hostile towards him, is now expected to put forward its own candidate.Reuse content