Lord Oakeshott has resigned from the Liberal Democrats saying that he is sure the party is "heading for disaster" under Nick Clegg.
His resignation came after Nick Clegg warned steps would be taken against him for leaking an ICM poll, which found the Liberal Democrat leader at risk of losing his seat at the General Election.
Mr Clegg said it was "unacceptable" to find out that a senior member of the party was seeking to undermine him and added that "appropriate steps will be taken" when Parliament returns.
He said when everyone else was out campaigning for the Liberal Democrats and one person was spending money in negative manner and described Lord Oakeshott's actions as "a great, great pity".
Mr Clegg said: "I think it is totally unacceptable in a campaign for the Liberal party facing very, very difficult elections last week, as we were, to find out now with hindsight that a senior member of the party, far from actually going out trying to win votes was spending money and time seeking to undermine the fortunes of the party.
Lord Oakeshott commissioned an ICM poll in Sheffield Hallam "Obviously Parliament will resume next week. All these things will be taken up then and discussed in the House of Lords and the House of Commons, and following those discussions appropriate steps will no doubt be taken."
The ICM poll, which showed Mr Clegg was at risk of losing his Sheffield Hallam seat, were leaked to The Guardian on Tuesday by Lord Oakeshott.
Sky News Political Editor Joey Jones said: "He must anticipate being thrown out of the party."
It is understood his future will be decided at a meeting of Liberal Democrat peers next week.
Business Secretary Vince Cable, who is a close friend of Lord Oakeshott's, was on Tuesday afternoon forced to deny any involvement in the leak, after rumours suggested his team could be behind the poll.
He put Lord Oakeshott's name in the frame calling his actions "totally inexcusable and unacceptable".
Vince Cable: It wasn't me He said: "I have made it very clear repeatedly that he does not speak or act for me.
"Commissioning and publishing polls without the consent of the Member of Parliament, as in the case of Sheffield Hallam, is utterly reprehensible."
Mr Cable has been widely touted as an alternative Liberal Democrat leader to Mr Clegg.
Mr Clegg has been under increasing pressure to step down after an abysmal performance in last week's local and European elections.
However, he has repeatedly refused to go, saying it would not be in the best interests of the party and that he would stay to get the job done.
Grassroots activists have signed a petition calling on him to step aside and local partys were understood to be arranging emergency meetings to discuss the matter.
It would take the backing of 75 local parties, or the calls of a majority of the party's 57 MPs to force a leadership contest.
The ICM poll commissioned by Lord Oakeshott showed that in the event of a General Election tomorrow, Mr Clegg's party would finish third in his constituency of Sheffield Hallam behind Labour and the Conservatives.
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