The Palmer United party’s deal with the government on financial planning regulations has unravelled, with the rebel senator Jacqui Lambie and the Motoring Enthusiast senator Ricky Muir planning to join with other crossbenchers to undo the changes.

It would be the first significant split within PUP since Lambie signalled her discontent with the party’s strategy and indicated she would no longer be bound by party decisions.

The PUP leader, Clive Palmer, said Lambie had been dumped as deputy leader of the Senate and deputy whip. Her right to come to party meetings was also suspended, although she had already ceased attending.

The new deal between Labor and the crossbenchers was announced at a media conference before the Senate resumed on Wednesday morning.

Muir, who is in a loose voting alliance with PUP, and Lambie have agreed to add their names to a disallowance motion that would unwind the Coalition’s changes to the former Labor government’s Future of Financial Advice reforms.

A previous Senate bid to strike down the changes failed when Palmer reached a deal with the finance minister, Mathias Cormann, which included several government assurances.

Lambie said she had previously told Palmer of her reservations but she had still been finding her way in the first few weeks of the new Senate. “Well I’ve found my way now and sometimes when you make a wrong you’ve got to go back in and make it right,” she said.

Labor was expected to move to suspend Senate standing orders on Wednesday morning in an attempt to revisit the vote, believing there were now adequate numbers to succeed.

The Labor senator Sam Dastyari has also added the names of the independent senators John Madigan and Nick Xenophon and the Greens senator Peter Whish-Wilson to the disallowance motion.

Xenophon said it was a “breakthrough agreement” reached after a “genuinely collaborative effort”.

“It is particularly pleasing that senators Lambie and Muir have listened to the concern of consumers and victims,” he said.

Xenophon said there would be no gag motion in the Senate because everyone should have an opportunity to contribute to the debate.

He urged the government to acknowledge the will of the Senate and “sit down with us in good faith” to discuss a sensible compromise.

Dastyari said the combined motion would undo all of the Fofa changes the Coalition government had made. He argued the government’s changes “contained loopholes including secret sales bonuses” and watered down a requirement for financial advisers to act in the best interest of their clients.

“These regulations took us back to the bad old days of financial planning,” Dastyari said.

“What we’ve put together is a coalition of common sense and we’re bringing together a group of like-minded senators and say enough’s enough. There have been too many victims.”

Cormann said Labor’s attempt to suspend standing orders to disallow the regulation was an “incredibly reckless and irresponsible move” that involved “putting a gun to the government’s head”.

“This is all about the commercial interest of the Labor party’s main shareholder, the union movement,” Cormann told the Senate.

“You’ve got the union movement with a clear interest in large industry super funds.”

In a statement, Cormann said the government was acting on Muir’s request to set up a register of financial advisers.

“Our Fofa reforms keep all the consumer protections that actually matter to consumers such as the requirement for financial advisers to act in the best interest of their clients and the ban on conflicted remuneration for financial advisers,” he said.

“What they also do is cut unnecessary and costly red tape which just pushes up the cost of advice for Australians saving for their retirement.”