Harriet Harman has warned Labour it cannot afford to "campaign against the public" amid deep divisions over her decision not to oppose moves to limit support through tax credits and universal credits to two children.
The interim Opposition leader has been criticised by three of the four MPs contesting the job for suggesting there is an appetite among voters for the squeeze announced by Chancellor George Osborne in the Budget.
The depth of feeling in the party was starkly illustrated by backbench MP Stephen Kinnock's assessment that the policy was "awfully reminiscent of some kind of eugenics policy".
Ms Harman - who told a testy weekly meeting of the parliamentary party that it was "nonsense" the stance was an attempt to put her own mark on the party - argued that a "virtuous opposition" policy of voting against every benefit cut for five years had got the party nowhere.
While the two-child rule was "not necessarily something we would be doing if we were in government" there was "an amount of public support" for it and the party had to show that it was "listening and learning" from its general election defeat, she suggested.
But aides conceded that the behind-closed-doors meeting at Westminster was "quite split" with many MPs expressing serious discomfort while others supported the stance.
The shadow cabinet - which includes leadership frontrunners Andy Burnham and Yvette Cooper who have spoken out against the tax credit curb - will meet tomorrow to discuss whether Labour should abstain when the legislation is voted on in the Commons next week.
Ms Harman argues that skipping the vote on the Welfare Reform and Work Bill would allow whoever is elected Ed Miliband's permanent successor in September the freedom to decide whether to oppose the tax credit element when it is debated in detail after the summer.
She says the party should concentrate its fire on other parts of the Budget package - including cuts to tax credit and universal thresholds, maintenance loans for students from poor families, reductions to some disability payments and the abolition of child poverty targets.
Critics of her decision also not to oppose the plan to reduce the overall benefits cap on individual households were offered the prospect of the party tabling amendments to protect vulnerable claimants and a push for the policy to be reviewed after a year.
Of the would-be leaders, who also include left-winger Jeremy Corbyn, only Liz Kendall has endorsed Ms Harman's approach.
"People said to us, 'We don't trust you on the money, we don't trust you on welfare reform'," she told the BBC.
"If we are going to oppose things we have to put something else in its place because if we carry on making the same arguments we have done over the last five years we will get the same result.
"We have to put forward a different credible alternative and Harriet was absolutely right to say that."
Appearing on the BBC's Daily Politics programme ahead of the meeting, Mr Kinnock, the newly elected son of former party leader Lord Kinnock, gave a damning verdict on the plan to limit payments to a family's first two children.
Urging Ms Harman to change her mind, he said: "It's simply not pragmatic and it is awfully reminiscent of some kind of eugenics policy."