The West Ham MP says he will seek Labour's nomination to challenge Ken Livingstone for the job in the 2004 elections.
Mr Banks was chairman of the Greater London Council in 1986 when Mr Livingstone was leader of the authority.
In a move which divided its London activists, Labour has rejected Mr Livingstone's attempt to rejoin the party.
A member of Mr Banks' team said on Wednesday: "This is not about personality.
Key backers
"Tony is standing because he believes he can win the Labour nomination and the mayoral election."
Mr Banks' leading supporters are likely to be Mike Gapes, Labour MP for Ilford South, and Sir Robin Wales, the mayor of Newham.
Candidates wanting to stand for Labour have until Friday to get their names in.
So far, only deputy mayor Nicky Gavron has formally entered the race and Labour will select its candidate by the end of the year.
Greater London Assembly Chairman Trevor Phillips was tipped as a runner, but has decided against entering the race.
Ms Gavron has worked closely with Mr Livingstone and says she would urge London voters to use the second of their two votes to back the current mayor.
She said: "The first thing I want to ask Tony is whether he'll be calling for a second preference vote for Ken in the mayoral election.
"I will be, and Labour members have a right to know this."
'Clear choice'
Mr Livingstone has been attending the 11 September memorial service at St Paul's Cathedral on Wednesday.
In a statement, the mayor said: "This will give a clear choice between a Labour candidate who wants to co-operate with me and one who wants to campaign against me.
"Nicky Gavron has worked closely with me for two years as my deputy...
"I hope Labour members will support her."
The Conservatives and Liberal Democrats have yet to select their candidates, although Steve Norris and Susan Kramer are expected to want to run again for the job they failed to win two years ago.
Former Tory MP and Olympic champion Sebastian Coe has said he will not run for the Conservative nomination.