The Labour frontbench rejected offering support to measures which would see the UK remain in the European Economic Area (EEA) after Brexit and instead proposed an alternative plan.
The official Labour amendments to the Brexit Bill would call on Theresa May to make maintaining “full access” to the EU “internal market” an objective of the negotiations with Brussels.
A Commons showdown on the Government’s Brexit legislation has been set for June 12 after the House of Lords rewrote significant parts of the EU (Withdrawal) Bill - including inserting a commitment to staying in the EEA.
It is understood Labour MPs will be ordered abstain on the Lords EEA amendment but will be asked instead to back the call for a “bespoke” deal which would see shared UK-EU institutions and regulations.
But critics of the approach set out by Mr Corbyn and shadow Brexit secretary Sir Keir Starmer insisted that backing the Lords amendment was the best hope of securing a “soft” exit from the EU.
Former shadow chancellor Chris Leslie said: “We should not be in the business of bailing out Theresa May when she’s facing rebellion on the single market.”
Bermondsey and Old Southwark MP Neil Coyle added: “Many of us will be supporting the EEA amendment from Lords. Not any lesser alternative.”
Ex-cabinet minister Ben Bradshaw said Tory MPs would not vote for a Labour frontbench amendment and if the party is “serious” about avoiding a hard Brexit “we must vote for the existing backbench cross-party Lords amendment”.
Chuka Umunna - a supporter of the pro-EU Open Britain campaign - said: “All the way through the passage of this Bill, the only amendments which have commanded support on both sides of the House and passed are cross-party backbench ones.
“So, if we are serious about ‘protecting full access to the internal market of the EU’ and ensuring ‘no new impediments to trade’, logic dictates Labour MPs should be whipped to support the cross-party EEA amendment sent to us by the House of Lords.”
Setting out his amendment, Sir Keir said: “Existing single market agreements that the EU has negotiated with third countries, including Norway, are bespoke deals negotiated with the EU to serve the best interests of those countries.
“We need to learn from them and negotiate our own more ambitious agreement, which serves our economic interests and which prevents a hard border in Northern Ireland.”
But Brexit minister Suella Braverman said: “Labour have shattered their promise to respect the referendum result - this amendment means accepting free movement and continuing to follow EU rules with absolutely no say in them, which is the worst of all worlds.”
On Wednesday, Mrs May will answer Prime Minister’s Questions in the Commons where the latest developments in the Brexit process are likely to be raised.
And Brexit Secretary David Davis is set to make a speech on his hopes for the future security partnership between the UK and the EU.
The intervention comes after a bruising row over the Galileo satellite programme and European arrest warrant which saw Mr Davis suggest Brussels was concerned with “public posturing and scoring points” rather than resolving the issues.