NATALIE McGarry will be told to make a donation to charity and issue a sincere apology or face being sued for wrongly claiming a pro-UK campaign group is led by a "holocaust denier".
Scotland in Union, which describes itself as a non-party movement to make the positive case for keeping Scotland in the UK, is to issue the ultimatum to the Glasgow East MP after seeking legal advice.
Ms McGarry, the former SNP MP who stepped down from the party after questions were raised over the finances of a pro-independence campaign group she co-founded, made the claim on her Twitter feed on Sunday morning.
She wrote around 11am: "Leading unionist figures do know that 'Scotland in Union' is headed by an internet troll and an outed holocaust denier, right?"
After the campaign group said the claim was completely inaccurate and suggested that Ms McGarry check its website before making allegations, she issued what appeared to be a half-heated apology and deleted the earlier Tweet.
She wrote: "I'd add however, that you should be careful who is distributing your materials, but apologies etc."
Scotland in Union sources indicated that the group did not believe that the apology had been appropriate given the nature of the allegation. The group is run by Alastair Cameron, a married father from Edinburgh who set up the campaign last year.
He receives no payment from his role as director, working full time as a consultant in the financial services industry and previously serving in the military.
A statement from the group, following a consultation with lawyers on Monday morning, said: "We can confirm that Alastair Cameron has instructed a legal firm to engage Ms McGarry and seek an appropriate apology and a charitable donation."
It is understood that court action is likely to be taken if the demands are not met.
Scotland in Union has recently commissioned polling that suggests that the public does not want a second independence referendum and has called on Nicola Sturgeon to rule out calling another vote to leave the UK.
Ms McGarry currently sits in the Commons as an independent after the campaign group Women for Independence called in police after concerns were raised over its finances leading to her resigning the SNP whip.
Ms McGarry, the niece of Holyrood presiding officer Tricia Marwick, denies any wrongdoing.
She also recently faced the threat of legal action from JK Rowling following a Twitter row, although the Harry Potter author later accepted an apology from Ms McGarry.
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