Labour has suspended nine councillors after they agreed a coalition deal with the Conservatives on Aberdeen City Council.
The Labour group signed a formal deal with Conservative and independent groups, leaving the SNP – the biggest party – in opposition.
Scottish Labour’s executive committee ordered the councillors to stand down from the coalition before 17:00.
The councillors were suspended after the deadline passed.
As a result, there are currently no councillors in Aberdeen representing the Labour Party.
Jenny Laing was chosen as council leader for Labour on Wednesday.
The party’s Barney Crockett had earlier been elected Lord Provost, with Conservative Tom Mason elected as deputy provost.
Scottish Labour leader Kezia Dugdale said: “Labour values must always run through any deals in local government.
“The hundreds of thousands of Scots who vote for us have the absolute right to expect us to defend local services against cuts and properly fund the services that so many people rely on such as education and care for the elderly.
“Labour cannot do any deal with another party if it would result in further austerity being imposed on local communities.
“Tory austerity risks hurting so many families in Aberdeen, and the Labour Party simply will not stand for that.”
Ms Dugdale said the Labour group had put together a proposal to do a deal with the Tories and independents in Aberdeen.
“That deal was considered by a sub-group of the Scottish Executive Committee (SEC) last night and it was rejected.
“It was rejected because they didn’t believe there was enough evidence within the proposals put forward that there would be no compulsory redundancies and there would be no end to austerity.
“What will happen later today is if they choose to proceed with a deal with the Tories and independents, we will be writing to the Labour group in Aberdeen making clear they are in breach of the Labour Party rulebook and we will take the associated, necessary disciplinary action alongside that.”
A party spokesperson added: “We absolutely cannot do any deal with another party if it would result in further austerity being imposed on local communities.
“As a result, any Labour councillor who does not stand down from this multi-party arrangement will be in breach of Labour Party rules and may be suspended from the party.”
Scottish Conservative leader Ruth Davidson said: “Kezia Dugdale has shown her true colours.
“As soon as the SNP finally comes under pressure, she can’t wait to help them out by propping them up in local government.”
The SNP also criticised what it described as “absolutely shameful behaviour from Labour”.
Discussions among all political groups on the local authority have been continuing since the election results were declared on 5 May.
The SNP became the biggest party, but did not have enough councillors to form a majority administration.
A total of 19 SNP councillors were elected, up from 16 in 2012, as the Conservatives surged to 11 from three and Labour’s total halved to nine. Two Independents were returned.
The Lib Dems were down one to four, but later announced they would not enter into a coalition to run Aberdeen City Council.
This meant a possible SNP/Lib Dem coalition could not happen.
Lib Dem councillor Jennifer Stewart has now left the party group to become an independent.
Analysis by BBC Scotland local government correspondent Jamie McIvor
The row over the new coalition in Aberdeen comes amid continuing uncertainty following the council elections.
There are no councils where one single party has an overall majority.
Only a handful of deals have been confirmed so far.
Labour did not completely rule out the possibility of local deals with the Conservatives to run councils before the election.
They strongly played down the notion – stressing their councillors would fight austerity, the difficulties of working with the Conservatives and the fact the party’s National Executive Committee would need to approve any deals.
But the notion that local deals between Labour and the Conservatives were possible should not come as a complete shock.