Labour's biggest donor, Unite, has threatened legal action over the party's decision to disbar dozens of union members from helping to select a general election candidate in Falkirk.
Labour's National Executive Committee (NEC) has announced it was placing the town's Constituency Labour Party (CLP) on "special measures", taking the selection process out of the hands of the local party and placing it under central control.
An internal inquiry claimed Unite had tried to "stitch up" the selection for union-backed Carie Murphy by cramming Falkirk CLP with more than 100 new union members.
The NEC has, consequently, decided to introduce a "freeze date" of March 12, 2012 for eligible members, the date when local MP Eric Joyce, resigned from Labour after a fight.
The union insists it has done nothing wrong, has been treated unfairly, and accused the party of succumbing to "Blairite pressure".
Lord Mandelson has already complained too many of Labour's selection processes were "in the hands of one union at worst or a couple at best".
It is estimated Unite is sponsoring a quarter of Labour's parliamentary candidates selected so far for the 2015 election.
Now, Len McCluskey, the Unite leader, in a letter to union members in Falkirk, has accused the party hierarchy of mounting a smear campaign against the union.
He points out Labour has "arbitrarily" introduced the freeze date to "exclude trade unionists from the selection process" and has given the selection over to a special panel.
Mr McCluskey adds: "We will be challenging this procedure and this campaign through all proper channels within the party, publicly and by legal action if necessary."
Sources suggested the Unite leader's relationship with Ed Miliband has reached rock bottom.
In April, he clashed with the Labour leader after warning him not to be seduced by Blairite members like Jim Murphy and Douglas Alexander, saying, if he did, "he'll be defeated and cast into the dustbin of history".
An angry Mr Miliband accused Mr McCluskey of disloyalty.
● Local government minister Derek Mackay is to "seriously consider" implementing legislation covering fair representation on Falkirk Council.
It has scrapped traditional committees for a 12-person ruling executive, which contains eight Labour councillors, one Tory, one independent and two SNP members.
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