Scottish Labour leader Anas Sarwar refused to be drawn into debates about independence during the Holyrood election campaign, but Mr Martin has now said the party should back "independence within the UK" for Scotland.
Writing for the LabourList website he said Labour needed a new offer to put to the public which wasn’t “devo max or home rule”.
"The majority of Scots now want greater control over their lives,” he writes. “A radical way to achieve this, and come as close as any proposal can to uniting the country, is to offer independence within the UK… independence without separation.”
Mr Martin said his idea would demonstrate the union is “based on consent, not compulsion.”
It would see Scotland “become a completely sovereign nation with total power over its domestic laws, services and taxation.”
He adds: "There would be no border for goods, services, capital or Labour. Defence would remain a UK-wide function with Scotland making a contribution to this and other common services.
"The UK now representing more than one sovereign state would continue to hold the seat in the UN and on its security council.
"Scotland could, though, if it desired have direct representation in a number of international bodies.”
He said this arrangement would "provide a solution to the issues of currency, pensions and border posts” and while it would not be feasible for Scotland to rejoin the EU it could rejoin Erasmus.
"Such an arrangement would require goodwill on both sides, a robust institutional structure and constant dialogue – but it could work, and avoid a future with either an acrimonious and messy divorce or half of Scots feeling they are being held in the UK against their will.”
Asked how currency would operate in such a set up, he said his suggestion was an “idea rather than a plan” and that it would need “a lot of development”.
He said that the Barnett forumla would likely end and Scotland would have full fiscal autonomy, with financial transfers continuing “on a needs basis”.
On the Bank of England he said the Scottish Government could appoint the deputy governor.