Labour is appealing against a High Court ruling that said new party members should have the right to vote in its leadership election.
Judges ruled in favour of five supporters who accused the party's National Executive Committee (NEC) of unlawfully "freezing" them out, even though they had "paid their dues".
But officials said Labour would mount a legal challenge to "defend the NEC's right" to uphold the party's rules and the appeal is expected to be heard within days.
The High Court ruling plunged the party's leadership race into chaos and Labour's procedures committee held a hastily arranged conference call to decide how to respond.
Jeremy Corbyn's allies had urged the party not to pursue an appeal, claiming members' money was being squandered on stopping them from voting.
Bookies were quick to further slash the odds of Mr Corbyn winning the contest following the legal ruling, which is expected to boost his support.
Rival Owen Smith insisted "of course it's possible" that he could still win the contest but called for the election timetable to be changed.
John McDonnell, who chairs Mr Corbyn's leadership campaign, claimed the decision had been taken by a "small clique" that opposed the Labour leader and warned it could cost the party hundreds of thousands of pounds.
The shadow chancellor said: "This is a deeply disappointing decision by a small clique of people behind closed doors, many of whom have openly expressed their opposition to Jeremy Corbyn's leadership, who are now trying to use Labour members' money to fund what they think is a further attack on Jeremy. However, this is just an attack on the basic democratic rights of members in our party.
"We are a democratic socialist party, you cannot have one without the other. I hope that Labour HQ rethinks this decision as it could leave a legal bill in the hundreds of thousands of pounds that we could be spending instead on campaigning to hold this Tory government to account, instead of subverting our own democratic processes.
"Due to this decision, we are now in the absurd position that Labour HQ is wasting members' money to prevent members having a democratic vote on the leader of their choice, which has already been firmly upheld by a High Court judgment."
General secretary Iain McNicol faces being ousted if the party loses its legal bid as the bitter war between the party's rival factions becomes more entrenched.
A senior Labour source said: "If Labour loses the appeal, the position of Iain McNicol becomes untenable."
In July, a judge rejected a challenge to Labour's decision to automatically put Mr Corbyn on the ballot paper.
Conservative Party chairman Sir Patrick McLoughlin said: "This summer, the Labour Party have held more High Court battles than leadership hustings.
"At a time when the people of Britain look to a party who will fight for them and their family, Labour are spending their summer fighting amongst themselves."
A Labour spokesman said: "The procedures committee of the NEC has decided that the Labour Party will appeal this ruling in order to defend the NEC's right, as Labour's governing body, to uphold the rule book, including the use of freeze dates."
The appeal hearing is expected to take place on Thursday.
Manuel Cortes, leader of the TSSA rail union, described the appeal against the High Court ruling as "catastrophic".
"Here we have paid officials going into court to stop Labour Party members exercising their democratic rights. Clearly a full meeting of the NEC should have been called before taking such a terrible decision.
"We have lost confidence in our full time officials to operate clearly in the interests of ordinary party members who can ill afford to fund expensive legal actions in the High Court."