Top Labor figures believe "it's time" for outspoken federal MP Michael Danby to retire as anger over his taxpayer-funded attacks on an ABC journalist sparked fresh speculation about his future.

Federal and state ALP sources say they expect Mr Danby to announce his retirement ahead of the next election - but are preparing for a possible preselection challenge in case he does not.

Mr Danby ramped up his attacks on the ABC's Middle East reporter Sophie McNeill on Thursday with a second ad - funded with his electorate allowance - in the Australian Jewish News.

The ads have accused McNeill of an anti-Israel bias in her reporting. Mr Danby is an ardent supporter of Israel who holds the seat of Melbourne Ports - which has a large Jewish community - on a margin of just 2 per cent.