Labour leader Ed Miliband is in a stand-off with the party's biggest union backer over the selection of candidates for the next election.
Unite general secretary Len McCluskey has denounced a Labour internal inquiry into candidate selection in Falkirk as a "stitch-up".
He denied claims Unite signed up new party members without them knowing, to influence the process.
Labour's Angela Eagle denies Unite's claims the party "smeared" the union.
The party has suspended two members of the local party amid claims of a "potential abuse of membership rules".
The row between Labour and its biggest union backer centres around claims of vote rigging in the process to replace Eric Joyce as Labour's candidate in Falkirk for the 2015 general election.
It has already seen the party step in to run the process centrally and suspend rules under which unions could sign up members to the Labour Party and pay the fees on their behalf.
On Thursday, Labour's general election co-ordinator Tom Watson, whose office manager Karie Murphy was Unite's preferred candidate in Falkirk, quit for the "future unity" of the party. Ms Murphy and Falkirk party chairman Stephen Deans were suspended by the party.
'A stitch-up'BBC political editor Nick Robinson said the row had gone much wider and was actually about the future composition of the Labour Party and what sort of people became the party's MPs.
Unite's stated strategy is to "shift the balance in the party away from middle class academics and professionals towards people who have actually represented workers and fought the boss".
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Angela Eagle MP: "Being proud of our trade union links doesn't mean that we can tolerate what went on in Falkirk"
In a letter to Labour's general secretary, Mr McCluskey said the union had "nothing whatsoever to do" with the alleged attempt to sign 100 or more members to the constituency party and paying their subscriptions.
"The report has been used to smear Unite and its members," he said. "It is noteworthy that members of the shadow cabinet have been in the lead in initiating this attack."
Mr McCluskey said Labour's internal investigation was "simply a stitch-up" designed to "produce some evidence, however threadbare, to justify pre-determined decisions". He demanded an independent inquiry into the events in Falkirk.
"I, however, am obliged to uphold the integrity of Unite, and I can no longer do so on the basis of going along with the activities of a Labour party administration in which I can place no trust."
'Abuse of selections'Angela Eagle, the shadow leader of the House of Commons, told the BBC the report compiled was "not a smear against his union, it's about individual instances of wrongdoing and potential issues about membership manipulation."
She told BBC Radio 4's Today programme: "It's up to the leader of the Labour Party, not anyone else, to decide to take the action that we've taken to ensure that our rules are followed.
End QuoteThe Labour leader wanted Watson's ruthlessness, organisational skill and campaigning zeal to help him reach Number 10. Today, though, Miliband has had to accept Watson's resignation"
"People can have an opinion about what action to take, but the leader and the general secretary of our party have made these decisions. The NEC (Labour's executive body) will be looking at this too. Outside of that, it's nobody's duty but ours to deal with this issue.
"We will not tolerate the kind of behaviour we have seen in Falkirk, whoever is responsible."
Mr Miliband said: "I am not going to have abuse of membership procedures and parliamentary selections in my party, and that is very clear, and I want to be clear about that to the leadership of Unite the Union in particular."
But David Cameron said it was now "quite clear the trade unions have far too much control over Labour".
"This has happened on Ed Miliband's watch. It is something of a scandal that is unfolding and he badly needs to grip it," he said.
The Falkirk vacancy emerged when MP Eric Joyce was kicked out of the party after committing an assault in a House of Commons bar.
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