Labour admitted yesterday that its membership has fallen below 250,000, to the lowest level since Tony Blair came to power six years ago.

The figures will be seen as a sign of disquiet in the party over its stance on Iraq and domestic policies such as tuition fees and foundation hospitals.

David Triesman, the party's general secretary, admitted membership had dropped to "a tiny amount below quarter of a million" in the past year. Party membership was 405,238 in 1997 and 311,000 in 2000.

Most of those who left were long-standing members who had failed to renew their membership. Many said they had left over Iraq. MPs have been asked to telephone members who refused to renew to try to persuade them to change their minds.

Mr Triesman said the party had turned around its financial fortunes, reducing a deficit of almost £9m in 2001 to below £1m last year. The savings were mainly made by moving from the party's expensive headquarters at Millbank to offices in Old Queen Street, which the party bought last year. A shake-up in management and administration led to further savings and reduced the party's overdraft from £6.2m in 2001 to £3.5m last year. The party also has a £5m mortgage on its new Westminster headquarters, the accounts approved by the executive show.

The party indicated its determination to press ahead with plans to expel George Galloway, MP for Glasgow Kelvin, in the face of opposition from several MPs and trade unionists. At a meeting of the national executive committee (NEC), three members tried to force a debate on Mr Galloway's suspension but the discussion was cut short.

His suspension came after his televised comments urging British soldiers to lay down their arms and refuse to obey "illegal" orders.

Two members of the NEC, including Steve Pickering, deputy general secretary of the GMB union, said that the investigation into Mr Galloway was unfair. Mr Galloway said last night that the party leadership would be wrong to be "smug" about its investigation and accused it of intolerance.

The MP has been assured that the investigation will be completed before late autumn, when the selection procedures begin for the next election.Mr Galloway wants to stand for Labour in Glasgow Central because his Kelvin seat is being abolished in boundary changes.

But he has said he will stand as an independent if he is thrown out of the party.