The claims, in a new book by Mahmoud Abbas, suggest that aides of Yitzhak Rabin, now Israeli Prime Minister, met officials to persuade the PLO to shape its public comments, and demands at the peace negotiations, to undermine the credibility of the Likud government.
Mr Abbas, otherwise known as Abu Mazen, a senior PLO official, says Labour's political strategists wanted the PLO to make demands which it knew the Likud would not accept and create the impression of a stalemate.
Labour also worked with PLO officials to campaign for a Labour victory among Israeli Arabs, according to the book.
The claims have been taken up by right-wingers as evidence of a major "conspiracy" between Labour and the PLO to undermine democracy and force the outcome of the elections. Bibi Netanyahu, leader of the Likud, said yesterday: "What we are talking about is a terrible conspiracy between Rabin and the PLO to disrupt the democratic process in Israel and topple the Likud government."
Mr Netanyahu said the allegations revealed "a terrible fraud" by the Labour Party.
Yitzhak Shamir, the defeated Likud Prime Minister, said the reports if true "bordered on treason".
However, the controversy is significant more as an indication of the weakness of Mr Rabin as the Prime Minister, than as any new evidence of double-dealing in 1992.
It was well known that the Labour Party had contacts with the PLO and obvious that the PLO favoured a Labour victory in view of Labour's more flexible approach to the peace process. It is perhaps not surprising to hear that the PLO helped to bring out the Israeli Arab vote in Labour's favour.
Nevertheless the claims are being exploited to the full by the Likud, which is feeling suddenly confident. The row has shed light on the slow progress of the peace process, which dogs the Labour Party 18 months after the signing of the Oslo accords.
The Prime Minister is on the defensive over controversies surrounding Jewish settlements. This new row has made him appear even more cornered and Mr Rabin has answered the claims of collusion only with angry denials.
Opinion polls published last week showed that Mr Rabin's support has been dropping - with 25 per cent of voters saying they would prefer Mr Netanyahu as Prime Minister and 23 per cent choosing Mr Rabin.Reuse content