Keir Starmer has said he sacked a shadow minister who joined a picket line for "making up policy on the hoof" in a move that reignited Labour's civil war.
Former Shadow Chancellor John McDonnell said the decision to fire Sam Tarry was a "severe mistake" and accused the Labour leader of "misreading" the level of public support for striking workers.
Mr Tarry was sacked yesterday after giving a string of interviews from a picket line without permission from party HQ, in which he backed the rail strikes and suggested that workers should get above inflation pay rises.
Labour's official approach is to criticise the Government for failing to resolve the issue, rather than publicly backing industrial action. It is also not calling for inflation-busting pay hikes.
Mr Starmer has has said the shadow ministers should not be on the picket line but no one had been disciplined for joining industrial action until Mr Tarry was sacked on Wednesday.
The decision has enraged trade unions and figures on the left of the party, firing up a public battle within Labour ranks.
Speaking on a visit to Birmingham, Mr Starmer insisted he had to act to enforce party discipline.
He told reporters: "Sam Tarry was sacked because he booked himself onto media programmes without permission, and then made up policy on the hoof, and that can't be tolerated in any organisation because we've got collective responsibility.
"So that was relatively straightforward. Of course, as far as the industrial action is concerned, I completely understand the frustration of so many working people who've seen the prices go up, seen inflation through the roof, and their wages haven't gone up.
"So the Labour Party will always be on the side of working people, but we need collective responsibility, as any organisation does."
A Labour insider said the party was determined not to make any un-costed announcements as it tries to park its tanks on Tory territory by promoting responsibility for economy.
But earlier, Mr McDonnell said the Labour leader had created a row which risked distracting attention from the bitter Tory leadership contest.
The Hayes and Harlington MP, who served with Mr Starmer under Jeremy Corbyn, told Sky News: "I don't know who is advising Keir Starmer, but this is a completely unnecessary row that's been invented just at a time when the Tories are tearing themselves apart, and we've got the maximum opportunity I think to gain an advantage in the polls that will build the support to take us into a government."
He added: "This is an unnecessary dispute and whoever has advised Keir Starmer on this, I think he has made a severe mistake."
Mr McDonnell said he supported "co-ordinated action" by unions after RMT chief Mick Lynch offered his backing to the threat of a general strike.
He said Mr Starmer and his team had "completely misread the situation", adding: "I think they've misread the mood within the labour and trade union movement. But I also think they have misread the mood amongst the general public."
Union chiefs and Labour MPs lined up to criticise the decision.
Unite boss Sharon Graham, which is one of Labour's biggest donors, said the party risked "becoming more and more irrelevant to ordinary working people".
The TSSA transport union, of which Mr Tarry was a member, said Labour was "deluded" if it thought it could win the next election "while pushing away seven million trade union members".
Gary Smith, general secretary of the GMB Union, branded it a "huge own goal" for Labour to "turn a Tory Transport crisis into a Labour story".
Former Labour deputy PM Lord John Prescott tweeted a photo of himself addressing striking miners when he was shadow transport secretary in 1984.
London Mayor Sadiq Khan told LBC that he would not join a picket line “simply because of the pressure of work”, but that he “absolutely” would otherwise.
He said: “I have in the past appeared on picket lines and I think it’s really important to make sure we understand that, actually, the genesis of all these problems – the root cause of all these problems – are Government policies.”
In a statement, Mr Tarry said it had been a "privilege" to serve on Labour 's top team.
"I remain committed to supporting the striking rail workers, and campaigning for a Labour victory at the next general election, which I will fight for relentlessly from the backbenches," he added.
Rail passengers suffered fresh travel chaos on Wednesday after thousands of workers walked out on strike, crippling services across the country.
A number of backbench Labour MPs also joined picket lines, including Liverpool West Derby MP Ian Byrne, Brent Central MP Dawn Butler, Birmingham Hall Green MP Tahir Ali, Gateshead MP Ian Mearns and South Shields MP Emma Lewell-Buck.
