So, just how loony are they in Walsall?

Could Labour's crackdown on its Walsall district party - hailed as "Blair blitz on 'loonies' " by yesterday's Daily Mail - provoke an internal backlash against Tony Blair's leadership? The protests of Walsall's left-wing councillors echo the backbencher Richard Burden, who complains today that "power is increasingly centralised around the leader's office".

The charge is not new. It was frequently heard under Neil Kinnock. John Smith was welcomed by some for running a more "collegiate" style of leadership, but attracted the opposite criticism of passivity. Mr Blair represents a sharp jolt back to the Kinnock style. But Mr Blair, so far, lacks the streak of paranoia and defensiveness that soured the atmosphere in the later Kinnock era.

Previously, Mr Blair had only sanctioned three disciplinary actions: the sacking of Ann Clwyd and Jim Cousins for going abroad without permission from the whips; the suspension of all the Labour councillors in Monklands where an independent inquiry found evidence of serious abuses of power; and the refusal to endorse Liz Davies as parliamentary candidate in Leeds NW. But John Rothery, the deputy leader of Walsall council, is likely to find a ready audience in the party for his complaint that the leadership is allowing itself to be led by Brian Mawhinney, the Tory chairman.

The timing of Monday's action was undoubtedly decided by Dr Mawhinney's decision to visit the town as part of his first regional tour. But Labour HQ's "early warning system" had already alerted anxious officials to potential problems in Walsall soon after the left-wing coup in May. On Monday, Frank Dobson, Labour's environment spokesman, faced a dilemma: to act immediately to try to pre-empt the Tory attack on an allegedly "loony left" council, or to act later, which might look like a lame and belated response to Tory pressure.

The Labour Party machinery was already moving against Walsall council leaders - but nothing had been decided. "Citizen Dave" Church, the left- wing leader of Walsall, and his deputy, Mr Rothery, were summoned to a meeting with David Gardner, Labour's local government officer, three weeks ago. They were asked to reconsider their plans for radical devolution of council functions to 54 neighbourhood committees, and were offered help with handling the media - already hostile locally. "They showed no willingness to compromise. They seemed to revel in the coverage they got," says one Labour source.

Mr Gardner visited Walsall to talk to councillors and compiled a report for the National Executive, which met a week later and approved in principle "reconstituting the District Labour Party along the lines of the new model rules" - the excuse Mr Dobson needed to suspend the party on Monday.

The trouble in Walsall arises from the polarisation of the two factions of the local Labour Party. For more than a decade, the left-dominated local party drew up the manifesto, which the right-dominated Labour councillors then ignored. This year, however, the left has taken over, after three years during which most of its left-wing councillors were suspended by regional Labour officials "for acting as a separate caucus". They are enacting a manifesto that is honest and unambiguous, although it is safe to say that few Walsall voters have actually read it. "They were voting for Tony Blair, they weren't voting for this," says one party official.

The Labour left in Walsall has long advocated radical decentralisation of power. Its left-dominated 1980-82 administration pioneered the devolution of council functions to 33 local offices. Mr Gardner's report to the National Executive observes drily that the programme suffered "tremendous implementational and cost difficulties".

Now Walsall's leaders seem determined to press ahead with an even more radical version, and have already sacked nine department heads, in line with their manifesto's statement: "Existing directorates would become redundant."

In effect, the Labour group is committed to surrendering all its powers to 54 mini-councils. The smallest, Goscote, would have a population of 800, but the average for these neighbourhoods is 5,000.

One problem to which the Walsall Labour Party appear to have paid no attention is that there is no legal way in which this can be done. What the council wants, explains Mr Rothery, is for each of these neighbourhoods to have a committee elected by local voters, which would be in charge of the full range of local council functions. But the law makes it clear that elected councillors alone bear responsibility for specified local council functions.

Mr Rothery accepts this restraint. For the Walsall Labour group's dream of "people power" to come true, a radical Labour government would have to be elected nationally to change the law.

Meanwhile, the council is searching for ways in which such locally elected committees could be given some real influence. ''One way may well be that we, the council, delegate powers to one of our officers working at neighbourhood level, who has to consult with the committee,'' he said.

Mr Rothery said there was no target date for setting up the neighbourhood offices or committees, and the group had little idea of the costs. If each committee had eight members - he declined to speculate on any number - that implies more than 400 new committee members. The kind of intensive local democracy that the Labour group envisages will not come cheap if each committee member can claim expenses for attending meetings and have to be serviced with agenda papers and reports.

''We're clear about where we want to end up,'' said Mr Rothery, but he admits the group is not yet clear about how to get there. With the national leadership's intervention, the path is further obscured. ''We've had the legs chopped from under us,'' he added.

The left-wing faction of the Walsall Labour Party may be romantic or impractical, but it is not "hard left" or "loony left" in any meaningful sense of either term. It rejoices in the pre-1980s title of the "Tribune Group". It is so old-fashioned that Walsall North was one of only three local parties that balloted its paltry 236 members and decided, by 65 votes to 60, to vote to keep the old Clause IV earlier this year.

Sources close to Mr Blair, on holiday in Tuscany, insist that the Labour leader is sympathetic to the devolution of power. But they point out that, for a party which believes in giving power to the people, Labour in Walsall seems curiously out of touch with local people, unable to attract them into membership, or to explain its policies to them.