In a letter to Labour MSPs and the party’s Scottish executive, Jennie Formby said it was “not sustainable to spend any further party funds” on defending Ms Dugdale from the defamation suit brought by pro-independence blogger Stuart Campbell.
The ongoing cost of the defence, thought to be approaching £100,000, has now been taken on by the Daily Record, which published a column that accused Mr Campbell of making “homophobic” comments about Conservative politicians David and Oliver Mundell.
Last week Labour MSPs issued a statement expressing “full support and solidarity” with Ms Dugdale in the case, amid growing anger over her treatment by the party.
Activists also unsuccessfully pushed for the issue to be debated on the floor of the Labour conference in Liverpool earlier this month.
Her supporters say the Lothians MSP was promised that the Labour Party would back her financially for the duration of the legal action.
However, responding to the statement in a letter to the Labour MSP Mary Fee, Ms Formby insists there was “no evidence to indicate that any open-ended commitment was made to fully fund Ms Dugdale’s legal costs” beyond “initial support”.
This came to an end following “internal discussion” after a sheriff ruled that the case should be given a full trial in the new year.
Ms Formby goes on to say that the case had the “potential to result in significant financial liability for the party” if Labour continued to provide funding, and argues that Ms Dugdale’s column was written “in a private capacity with the party having no sign off”.
A Labour source backing Ms Dugdale responded with derision to the letter, saying: “What could be more branch office than suggesting the UK party should sign off on the Scottish leader’s remarks?”
A spokesperson for Kezia Dugdale MSP said: “Jennie Formby’s letter throws into question whether she believes in the party’s values of solidarity.
“As for her bizarre claim about the party having ‘no sign off’, Kezia Dugdale was the leader of the party at the time of writing. Is Jennie Formby really suggesting that Scottish Labour leaders need ‘sign off’ from UK officials? That should deeply trouble the current leadership.”