MP Howard Flight has vowed to fight his leader's bid to bar him as a Tory candidate at the forthcoming election.
Howard Flight says he 'regrets' his remarks
Michael Howard sacked Mr Flight as deputy party chairman and removed him from the candidate list over comments he made about Tory spending plans.
But a defiant Mr Flight has told the BBC he intends to fight his Arundel and South Downs seat at the election.
Mr Flight told a private dinner the Tories would exceed planned £35bn public spending savings when in power.
His comments were seized on by Tony Blair as evidence of secret Tory plans for cuts to public services - something vehemently denied by Mr Howard.
The Tory leader attempted to draw a line under the row by sacking Mr Flight as deputy party chairman and then removing the party whip - preventing him from standing as an official Tory candidate.
He said: "We will not say one thing in private and another thing in public. Everyone in my party has to sign up to that. If not, they're out."
But in an interview broadcast on BBC Radio 4's PM programme, Mr Flight was asked if he intended to be a Conservative candidate and replied: "I do, yes."
Asked if he had the support of his local Conservative Association, he replied: "I think I do, yes."
He added: "I think there's a question of principle. The issue of candidates has to be done in a proper constitutional way. To do otherwise would expose Michael to attack."
But a Conservative Party spokesman insisted that the Political Parties, Elections and Referendums Act 2000 required Conservative candidates for all elections to be authorised by the Party's Nominating Officer.
"Mr Flight will not be authorised and as a result will not be able to stand as a Conservative Party candidate," he said.
Mr Flight was a key architect of the Tories' economic policy, setting up the James review into public spending, which identified £35bn in savings.
In his Wednesday night speech, the tape of which was leaked to The Times, he said the Tories could go further if they won the election because "everyone on our side of the fence believes passionately that it will be a continuing agenda".
After the election "you can actually get on with what needs to be done", he added. But Mr Flight told PM his remarks had been misinterpreted and subject to Labour "spin" and he insisted there was "no secret plan for more cuts".
He earlier told BBC News 24: "It is an ongoing duty of government of whatever persuasion to get the best value for people's taxes. There is nothing hidden about that at all."
Paul Dendle, a Conservative district councillor and chairman of Arundel Conservative Association, said Mr Flight's resignation as deputy chairman was "appropriate", but he felt the withdrawal of the whip was "a step too far".
He agreed it was "possible" the local 1,500-strong association could defy Central Office and continue with Mr Flight as its candidate.
He said Mr Flight was a popular local MP and had a "groundswell" of support within the area.
Speaking in County Durham Tony Blair said Mr Flight's comments showed the Tories had a hidden agenda to return to Thatcherism.
He said: "An economic plan that even had the spending cuts they are admitting, never mind the ones they are hiding, would just take us right back to the economic risks, the under-investment in public services, the social division that people wanted to leave behind in 1997."
Labour's election chief Alan Milburn said Mr Flight's remarks showed Tory plans to increase public spending by £35bn less than Labour by 2012 were "just the tip of the iceberg".
Lib Dem Treasury spokesman Vince Cable told BBC Radio 4's Today programme: "The problem all along has been that they (the Conservatives) have been promising simultaneously to cut taxes, improve public services, and reduce the budget deficit.
"They say 'we will just cut waste' and hope people will take them on trust and now they have been found out."