The Conservative party chairman Grant Shapps is facing legal action from a constituent following the emergence of audio evidence that revealed, contrary to his public statements, that he carried on using the business pseudonym Michael Green while an MP.

Dean Archer was pursued by the politician’s lawyers after he published a Facebook posting mocking Shapps’ use of a business pen name and suggesting that he did so after he had been elected to parliament. Until last week, when he was presented with new audio evidence, Shapps had rejected claims that he had carried on under the guise of Michael Green while an MP. He has now admitted that he had “over-firmly denied” that claim. In a statement to the Observer, Archer, a chauffeur and former Labour councillor, said that he was now consulting his own lawyers.

It is understood that any legal action against the Tory chairman would proceed on the basis that Shapps owes Archer personal damages. Archer said: “I have been bullied and threatened with legal action based on a falsehood. Now I will take action of my own. I am taking legal advice and will be writing to Grant Shapps and his lawyers to demand that they explain the action they took. Did Grant Shapps mislead his own legal counsel?

“It is incredible that Mr Shapps has ignored my calls for an in-person apology, and it is shocking that David Cameron has taken no action against this wrongdoing on his watch.”

In response to the development, a Conservative party spokesman said: “Dean Archer is a failed Labour councillor who was forced to resign from public office. He wrote comments, which were indeed defamatory, accepted this and volunteered to remove them.

“The party chairman’s interests in his family business were all properly declared to parliament: any suggestion otherwise is defamatory, and malicious, and will be treated as such.

“Like a number of Guardian/Observer journalists, the party chairman occasionally published under a pen name. This has all been exhaustively reported before.”

Archer was a Labour councillor until September 2013 when he was disqualified for not attending a council meeting during the previous six months. He has blamed his attendance record on the anti-social hours he works as a driver.

In his Facebook posting, Archer had noted that Shapps had called fellow MP Mark Reckless “a liar” for defecting to Ukip. Archer went on to question how honest Shapps had been when he had previously appeared as online marketeer “Mr Green”.

In response, letters from the MP’s lawyers, sent last October and November, demanded that Archer retract what was described as a “defamatory allegation” and offer “proposals for compensating our client in lieu of damages and [an] undertaking to indemnify our client in full for his legal costs”.

However, after the story broke about the existence of the audio evidence, Shapps admitted that he had “screwed up” on the dates and therefore incorrectly denied working as Green while he was in Westminster.

In the recording from the summer of 2006 he boasts that his products could make listeners a “ton of cash by Christmas”.

In Archer’s statement to the Observer, he said his wife was particularly upset by the Tory chairman’s reaction to the Facebook posting. Archer said: “The response from Mr Shapps was both shocking and genuinely scary. A letter appeared from a high-powered law firm, Hill Dickinson, saying I had libelled Mr Shapps and asked me for damages to be paid to Mr Shapps unless I wanted to end up in court.

“My wife in particular was really very upset. After I contacted Mr Shapps’ solicitors they suggested a form of wording that would be acceptable to him, in return for which he would not sue me. The wording said: “[Mr Shapps] openly published his full name alongside business publications making it clear that he used a pen name merely to separate business and politics, prior to entering Parliament.

“This is something Mr Shapps has said repeatedly. Just a few weeks ago he told LBC’s listeners three times in response to questions that he had stopped calling himself Michael Green and working for How To Corp Ltd when he became an MP, although he remained a director and shareholder. He has said so again and again.

“So you can imagine how furious I was when I saw the Guardian had found a tape of him a year after being elected – the summer of 2006 – talking about his work, saying he’d spent ages researching products and was launching new products soon – products that indeed did launch after the tape was recorded.”

The prime minister has defended Shapps while the health secretary Jeremy Hunt attacked Labour, the Guardian and the BBC, who reported the story, for an “attack” on Shapps. He tweeted: “His sin not 2 use pseudonym but 2 write books about how 2 create wealth – shock horror.”