Labour former minister Kim Howells has warned leader Ed Miliband he must tackle the trade union movement's hold over the party.
The former MP said the messy candidate selection process in Falkirk, which has been dogged by claims the Unite union tried to "stitch up" the seat by cramming the constituency with new members, was damaging Labour's reputation.
Mr Howells claimed Labour left itself exposed because most of its money came from the unions and warned it could not afford to be viewed as a party of vested interests."
Mr Miliband has attempted to show he is willing to take on the unions since scooping Labour's top job, but critics claim his election on the back of the union vote means his hands are tied.
Mr Howells, a former foreign minister, added: "He (Mr Miliband) has got to face up to it because I think this threatens the whole reputation of the Labour Party."
Unite is threatening legal action in the Falkirk row and Labour has announced it will impose a candidate to run for the Westminster constituency.
The vacancy emerged when MP Eric Joyce was thrown out of the party after committing an assault in a House of Commons bar.
An internal report considered by officers of Labour's ruling National Executive Committee (NEC) at an emergency meeting earlier this week found "sufficient evidence for concern" about the legitimacy of some new recruits to the Falkirk party.
The NEC put the constituency into "special measures" and announced that the process of selecting a candidate for the 2015 poll will be taken over by the national and Scottish parties.
Unite's general secretary Len McCluskey has written to union members in Falkirk voicing opposition to Labour's stance. He claimed Labour Party members in Falkirk were being ignored and that Unite was being subjected to a smear campaign.
Conservative Party chairman Grant Shapps said: "If Ed Miliband can't stand up to the trade union barons taking over the Labour Party, there's no way he could stand up for Britain's hardworking people."
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