As many as 100 Labour MPs might form a breakaway group in parliament if Jeremy Corbyn refuses to stand down if the party loses the general election, the Daily Telegraph reports.
The claim was published shortly before the party's draft manifesto, due to be signed off today, was leaked to two newspapers and the BBC.
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In addition, zero-hours contracts would be banned, tuition fees scrapped, the NHS salary cap abandoned and an extra £8bn spent on social care.
The leaked document, which senior Labour figures have said is genuine, also says no "false promises" will be made on immigration.
Corbyn declined to comment on the leak, but the Tories described the draft manifesto as "a total shambles" and claimed it would cost tens of billions of pounds.
Laura Kuenssberg of the BBC says the policies "will be manna from heaven for Jeremy Corbyn's supporters".
However, she adds, although it "contains ideas that poll well with swathes of voters", it "could be a challenge to the concept of pleasing much of the traditional centre ground of 'Middle England'".
With polls predicting a landslide win for the Conservatives and the Labour leader pledging to carry on regardless after 8 June, the Daily Telegraph says Labour faces a "historic split" and that several candidates are talking to potential donors about forming a new progressive group in the Commons.
Although there is no intention to form a new party, Labour politicians could resign the whip and become independents grouped together under the same banner. This would enable them to rejoin the party if they wished.
This "well-organised anti-Corbyn faction", which would sit on the backbenches, "could make it difficult for the current Labour leadership to form a viable opposition because of a shortage of MPs to take up shadow cabinet posts", says the Telegraph.
"There will be a blood-letting in July," a Labour source said. "Sensible people are going to walk away. There is talk of a realignment because we can't allow this to continue."
The latest polls put the Tories ahead by 20 points, meaning Labour could end up with as few as 160 MPs.
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