Mr McDonnell has been MP for Hayes and Harlington since 1997
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Left-wing backbencher John McDonnell is expected to challenge Gordon Brown for the Labour leadership when Prime Minister Tony Blair steps down.
The 54-year-old represents Hayes and Harlington in west London and has been one of party's most rebellious MPs.
It is thought he will make a formal announcement on his decision on Friday.
The chairman of his constituency party, Peter McDonald, told BBC News the candidacy would ensure an "open and fair fight, not a coronation".
"This is not a move against Tony Blair - it's a move against New Labour and the way it's formed at the moment," he said.
"We've had no debate. We in the party have felt very disenfranchised."
'Coincidental' announcement
Mr McDonald stressed the decision had "nothing at all to do" with the controversy over Labour party donations and the arrest of fundraiser Lord Levy.
The timing was "coincidental", he said.
He added the MP had the full backing of his local party when it was discussed at a meeting last week.
Mr McDonnell has voted against Labour in the Commons on several occasions.
He has spent 25 years in politics and was the deputy leader of the Greater London Council under Ken Livingstone.
Mr McDonnell told a rally at the weekend that a Brown leadership would result in the Tories returning to power.
'No coronation'
Speaking at the annual Durham Miners' Gala, he said: "Some are saying that there needs to be a smooth transition, a coronation, but that would mean no change because Gordon Brown is the architect of many current policies.
"It will be Blair to Brown to Cameron because the Tories will be back. "There will be a number of us campaigning to insist there is an election for the next leader of the Labour Party. There will be no coronation."
Mr Blair has said he will not fight the next general election but has refused to set a timetable for his departure from Downing Street.
He has stressed he wants a "smooth transition" to Mr Brown and has pledged to leave "ample time" for his successor to bed in before going to the polls.
The next general election is expected in 2009 or 2010.