Labour's candidate in the forthcoming Hartlepool by-election has accused the Liberal Democrats of forming an alliance with the Tories.
Iain Wright has accused the Lib Dems of adopting right wing policies
Local councillor Iain Wright, 32, made the comments in an e-mail to party members which accused the Lib Dems of adopting a right-wing policy agenda.
Both opponents dismissed the claims and said Labour are "running scared".
The by-election was prompted by former Cabinet minister Peter Mandelson's appointment as an EU Commissioner.
Mr Wright's comments were made in an e-mail which was released officially by the Labour Party.
In the message he also said Lib Dem leader Charles Kennedy appeared to be prepared to serve in a government under Michael Howard, adding the "real choice" is between Labour and the Conservatives.
Mr Wright wrote: "It is pretty clear that the Lib Dems and the Tories are moving together - Charles Kennedy's hostility to the Labour Party is so great it is easy to imagine him serving in government under Michael Howard.
"We already know that, in Hartlepool, the Lib Dems and the Tories were happy
to work together and to introduce damaging spending cuts that put public safety
"That is why the choice in Hartlepool remains between Labour and the Tories -
in whatever guise they appear."
The father-of-three, who is a chartered accountant, beat off two other hopefuls to be selected as the Labour candidate in early August.
The Hartlepool by-election will be held in September or October.
Labour is defending a 15,000 majority but recent by-election results at Birmingham Hodge Hill and Leicester South suggest it could have a fight on its hands to retain the seat.
In his message, Mr Wright added: "Here in Hartlepool the Lib Dems are desperately trying to pick up the Tories' votes.
"Their leading figures are proposing ever more right wing policies - including the destruction of the NHS and its replacement by a social insurance system."
Both the Lib Dems and Tories have dismissed the comments as unfounded, suggesting that it is a sign of fear within the Labour Party.
Lib Dem chairman Matthew Taylor said: "This laughable e-mail shows just how worried the Labour party is that so many of their tradition al supporters are deserting them for the Liberal Democrats.
"The fact is that it is the Labour Party that has moved to the right, even relying on the Conservatives to get parliamentary support for the Iraq war."
And, regarding the forthcoming by-election, he added: "This is developing into a clear two-horse race between Labour and the Liberal Democrats, with the Conservatives giving up before it has begun - and this e-mail proves Labour are running scared."
The Tories, meanwhile, accused Labour of paranoia.
A Conservative party spokeswoman said: "Labour came to power seven years ago making lots of promises which haven't been kept.
"People feel let down by Labour and are tired of a government which says one thing and does another.
"It is a measure of how paranoid Labour are that even in a safe seat they feel they must stir up rumours of collusion where none exists."
Barrister Jody Dunn will be standing for the Lib Dems but the Conservatives are yet to select a candidate.