On Wednesday afternoon, after a harrowing prime minister’s questions, it is said that Jeremy Corbyn had a tearful moment in the relative privacy of his Westminster office. According to senior Labour sources, there was a “wobble” and suggestions that he wanted to go.

One of Corbyn’s most influential aides, director of policy Andrew Fisher, is said by three senior sources to have drawn up potential terms for the leader’s resignation. Under the deal to be struck with the rebelling parliamentary party, there would be a place for Corbyn in the shadow cabinet and his close friend John McDonnell would be retained as shadow chancellor.

There would be a commitment from the next Labour leader to retain an anti-austerity policy programme. And a leftwing candidate would be allowed to appear in a future leadership contest. And Corbyn staff would keep their jobs. In short, the leader’s legacy would be protected. But later that day, after discussions with McDonnell, Corbyn’s spirits rallied, the doubts were overcome, and the deal was called off.

A Corbyn spokesman has dismissed all of these claims as “100% not true”, insisting the Labour leader was resolute and strong.

On Saturday Corbyn appeared stressed, and had to be restrained and ushered away by aides at a “Love Islington, Say No to Hate Crime” rally on Highbury Fields after a reporter asked whether he was “running away” from answering questions about his future. But a source close to the leadership said that McDonnell at least was actually enjoying the battle over the future of the Labour party. “He finds it funny,” the pro-Corbyn Labour official said. And so the claims and counter-claims continued in perhaps the most febrile period in the party’s history.

Stubborn as the leader and his chancellor may be, few could blame Corbyn, 67, if he had found the extraordinary developments of the last week somewhat overwhelming.

Last weekend the Observer reported that Hilary Benn was calling shadow cabinet members to ask them to join him in trying to force Corbyn out. Après Benn, le déluge. Since the shadow foreign secretary was sacked for his disloyalty in the early hours of Sunday morning, more than 60 Labour frontbenchers have resigned.

Following a stormy meeting of the parliamentary Labour party on Monday evening, during which MPs implored Corbyn to step down for the sake of the party, 172 (81%) supported a no-confidence vote in their leader.

More than 500 Labour councillors have signed a public statement calling on Corbyn to step aside. And six new members of the shadow cabinet from the left of the party – along with the shadow home secretary Andy Burnham, who has yet to abandon Corbyn – unsuccessfully sought to meet the Labour leader on Thursday. The intention was to ask him how the party could possibly continue with him at his head.

Today the Observer reveals that Corbyn’s private office is reluctant to allow the leader to speak to the Labour party’s democratically elected deputy, Tom Watson, on his own.

A senior source close to Corbyn explained: “They want Watson to be on his own with him so that he can jab his finger at him. We are not letting that happen. We have a duty of care here. He’s a 70-year-old man [sic]. This is not a one-off. There is a culture of bullying, maybe it’s a Blairite/Brownite thing. But while they see two old men [Corbyn and McDonnell], they don’t see the 250,000 people behind them.”

The standoff has paralysed Labour as a political force. On Friday evening, Labour officials and press officers drank “dark and stormy” cocktails (ingredients: dark rum and ginger beer) at Labour’s headquarters in Victoria to mark the departure of a press officer. “The cocktail felt apt,” said one who attended.

Corbyn may still decide to quit, but many in the parliamentary party now fear they are on track for a bitter leadership contest and a battle royal over the soul and the machinery of the Labour party. The result may be Corbyn’s defeat. But MPs privately admit it could just as easily lead to the reaffirmation of his mandate from Labour members, the splitting of the party, and a fundamental reshaping of British politics.

One northern Labour MP, albeit from the right of the party, said he would consider defecting to the Conservatives, such was his looming anxiety about the state of the party and its chances in a general election. The two possible so-called unity candidates – only one of whom will challenge Corbyn and carry the hopes of the majority of Labour MPs – are the former shadow work and pensions secretary Owen Smith and the former shadow business secretary Angela Eagle.

Facebook Twitter Pinterest Jeremy Corbyn leaving his home in London last week. He was said to have suffered a ‘wobble’ over continuing by some sources. Photograph: Neil Hall/Reuters

There has been talk of private hustings to decide between the two, but Smith, who resigned only reluctantly last week, is said to have considerable support from MPs in the party and it may be that Eagle comes to the conclusion that he is best equipped for the battle. And what a battle it will be.

Corbyn, as his allies never tire of repeating, won a significant victory last September with 59.5% of the 422,664 first-preference votes. His allies insist they see little evidence of a weakening of that support.

Following that alleged moment of emotion on Wednesday, staff in his private office were told to offer Corbyn more help, but allies say that an army is being assembled outside parliament to come to their hero’s rescue.

James Schneider, of the grassroots movement, Momentum, formed by activists in last year’s Corbyn leadership campaign, said that rallies in the Labour leader’s favour were being held from Penzance to Glasgow. He said there were now 130 Momentum groups across the country. More than 5,000 people had reportedly joined as paying members of the movement in the last three days while a further 20,000 supporters had flocked to the flag during the last week. There are currently 10,500 paying Momentum members and staff and volunteers are getting ready to recruit £3 “registered supporters” to back their man once a contest is sparked. Some 60,000 people have joined the Labour party as full members during the course of the last seven days.

“We are also getting plenty of donations,” Schneider said. “And the Twitter account Jeremy4PM has had 10 million hits. It is obviously a very difficult situation [in parliament]. But I think what we are seeing is a different conception of leadership and how we rebuild our party between members and some MPs.”

But it is not just the Corbyn side of the debate that has been busy. The resignation of much of the Labour front bench has left a lot of their advisers unemployed – but a large number have stayed active. Using a Whatsapp account called JobsCentrePlus, they have been organising a mass membership drive for those who, in their words, want to save the Labour party.

Labour First, the network of MPs and members who describe themselves as moderates, has been mining its mailing lists to bring members in. Morale has also been strengthened by a rush of celebrities, including JK Rowling, who has retweeted a number of calls for Corbyn to stand down to her 7.6m followers.

And it is said that the 60,000 new Labour members are fairly evenly divided between those who want Corbyn to stay and those who want him to step down. MPs working for his removal claim that every day that the current impasse continues, support for the leader wanes.

“People start off angry because they don’t like what has happened last week but they come to realise that this cannot go on, and that Jeremy’s position is untenable,” said one former shadow cabinet minister.

More than 20 constituency Labour parties have voted in favour of Corbyn, but they are in the main small and often not represented by an MP.

In larger constituencies where there is an MP to make the counter-case, the story might be different, it is said. In Oxford East, Andrew Smith MP has had more than 1,000 emails on the issue of Jeremy Corbyn’s leadership, with a 60:40 split in favour of Corbyn quitting.

In Holborn and St Pancras, Corbyn supporters lost a motion of no-confidence in their MP Keir Starmer, who had resigned from the frontbench, by 44 to 35. In Streatham the constituency Labour party voted 53 to 13 for the leader’s resignation. In Battersea, members backed a motion of no confidence in Corbyn by 64 votes to 20. And in Gloria De Piero’s constituency of Ashfield, which nominated Corbyn for the leadership last year against its MP’s wishes, there is said to have been a total rethink. De Piero said that most of her 200-plus members had been in touch, and they wanted Corbyn to go.

Yet none of this appears likely to move those loyal to Corbyn. On Tuesday the Labour leader is planning to address his shadow cabinet on the subject of the Chilcot report into the Iraq war, before its publication. A symbol of the Labour left’s disillusionment with the Blair/Brown years, Iraq is a wedge issue that Corbyn is likely to exploit for all its worth.

The battle, then, goes on. One Labour official close to Corbyn said people were underestimating the MP for Islington North’s resolve, and belief in his cause. The source also attacked the “bullying methods” of the rebels to get frontbenchers to quit and the attempts to sabotage the party’s ability to hold the government to account.

The Observer has seen evidence that an aide for one former shadow minister deleted vital records accumulated by the party on their position on the finance bill as he quit.

“Under normal times the party’s most severe punishment to my knowledge for such a transgression could go as high as deselection,” the Labour source said. “It’s really outrageous behaviour.” And the source made it clear that the battle for Labour would go to the last. “We don’t care if it collapses in parliament’, he said. “It is the MPs’ fault.

“We would be happy to take those who have resigned back. Can you imagine the love that someone who came back, and brought others with them, would get? But there is no deal to be struck if it involves Jeremy standing down. That is not happening.

“Jeremy and John are here for the long fight. They are professional agitators. I have never seen them more determined. Now these people who want them gone need to put up or shut up.”