Her shock resignation yesterday launched a leadership campaign that insiders warn will expose the bitter splits among parliamentarians and activists that have been brewing in the months since Labour lost control of Holyrood.

Westminster sources said Labour MPs will demand that the new Holyrood leader scraps support for an independence referendum, insisting that the party returns to a strongly Unionist line. But many MSPs are calling for the new leader to be given complete authority over the Scottish party, to silence SNP claims that they have to bow to the party's London HQ.


Scotland on Sunday understands that Gordon Brown will, for the first time, refrain from backing any candidate for the top job at Holyrood, a sign that he fears his endorsement might increase tensions in his already fractious party.

East Lothian MSP Iain Gray is set to be the first to declare that he will stand for the leadership vacancy. Former health minister Andy Kerr is expected to join him, while Labour MSP Margaret Curran and deputy leader Cathy Jamieson are considering their positions.

Alexander announced her resignation in Glasgow yesterday morning, following the Scottish Parliament Standards Committee's decision to suspend her for a day after finding she had broken parliamentary rules by failing to register donations she had received in her election campaign last year.

She issued a fierce attack against the committee, chaired by a Nationalist MSP, claiming that there had been a breach of "natural justice" and describing it as a "partisan decision". But the SNP said that Alexander, who remains an MSP, had only her party to blame.

The affair which led to her resignation began nine months ago, when she admitted receiving an illegal £950 donation from a businessman based in Jersey. Dr Jim Dyer, Holyrood's standards commissioner, last week concluded that Alexander should have placed the donations on the register. The Standards Committee then backed his decision.

Alexander is understood to have decided on Friday that she wanted to quit, after realising that the affair would drag on through the summer. She has told friends that she would not have resigned had the Parliament voted the measure down last week. The committee's conclusions were not voted on because the Parliament went into summer recess immediately after the committee reported back.

Senior Labour figures say that the forthcoming election campaign is set to expose the infighting between the party's MPs and MSPs. "It will be a complete bloodbath," said one senior source.

Another MSP added: "The MPs will want a figure who is strongly Unionist, but we just feel that will kill us in Scotland."

Gray and Kerr were emerging as the front runners in the race to take on the job last night.

Gray is expected to run his campaign as a party 'unifier', pointing to his experience as an MSP and as a senior aide at Westminster. While Brown will stay out of the contest, his campaign is likely to be backed by other senior party figures at Westminster, including Chancellor Alistair Darling, for whom he used to work. A sceptic of Alexander's referendum strategy, it is also likely that Gray will adopt a far more cautious approach to the referendum strategy.

Senior sources said Kerr would "undoubtedly" throw his hat in the ring this week, claiming he had been building up support for a leadership campaign from business people in East Kilbride.

In a statement at John Smith House in Glasgow yesterday, Alexander said: "My pursuers have sought the prize of political victory with little thought to the standing of the Parliament. Some may feel they have achieved a political victory, but wiser heads will surely question: 'at what price?'"

She went on: "It is clear that vexatious complaints will continue to dominate the headlines as long as I remain Labour's Scottish parliamentary leader."

A source close to First Minister Alex Salmond hit back: "The only organisation that has been damaged by Wendy Alexander's resignation is the Labour Party."

Nicola Sturgeon, the SNP's deputy leader, said: "Decay from within is characteristic of the decline of the New Labour project, and Wendy Alexander's resignation is a symptom of this wider malaise."

In a further blow for Labour, it emerged yesterday that Glasgow East MP David Marshall was stepping down on health grounds. Although the 67-year-old has a 13,507 majority, the party fears another drubbing at the polls. "There is nowhere in Scotland that we want to fight an election at the moment," said a Labour source.

It was reported last night that a number of significant Labour donors had described Gordon Brown as not up to the job and accused him of mishandling the credit crunch.