Six MPs quit Mr Corbyn’s frontbench in protest at the hard-left leader’s plans to keep the UK inside the single market after Brexit.
Laura Smith, Ged Killen, Ellie Reeves, Tonia Antoniazzi, Anna McMorrin and Rosie Duffield all walked away from the Labour top team.
Their dramatic departures came as the House of Commons threw out a series of amendments to the historic Brexit Bill by unelected peers.
MPs voted against controversial plans to tie Britain to the European Economic Area (EEA) which would have meant the continuation of free movement.
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The Lords EEA amendment was voted down was rejected by 327 votes to 126, a majority of 201, in a victory for Prime Minister Theresa May.
A huge 74 Labour MPs voted in favour of the Lords amendment, while 15 against it, despite Jeremy Corbyn urging his colleagues to abstain.
Labour’s Susan Elan Jones was a teller for those voting to uphold the amendment, which could also be seen as revolt against the abstain order.
Just three Tory MPs rebelled against the Government – former Cabinet ministers Ken Clarke, Anna Soubry and Dominic Grieve.
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Ms Soubry told the Commons: “I will be voting for the EEA amendment because I believe, as I have said many, many times, of the value of the single market.”
The Broxtowe MP also urged MPs to advocate the case for immigration and “suck it up”.
She said: “Suck it up: there is no alternative that has been advanced in this place other than the customs union, the single market. Let’s grab it, let’s do it and move on.”
Mr Corbyn proposed an different amendment requiring the Government to push for “full access to the internal market of the EU”.
But his amendment was defeated by 82 votes.
In a series of tweets, Laura Smith said she was resigning from the Labour frontbench to vote against EEA membership.
She wrote: “I promised Crewe & Nantwich that I would respect the referendum result. Remaining in the EEA is not compatible with that.
“It isn’t acceptable to label the majority of my constituents as racist or to suggest they didn’t know what they were voting.
“It is not the place of politicians to tell the people they were wrong.”
The Conservatives said the resignations showed that Mr Corbyn “can’t lead his own party let alone our country through complex Brexit negotiations”.
Liberal Democrat leader Sir Vince Cable accused Labour of wasting an opportunity to defeat the Government.
The Remainer said: “Brexit is not inevitable, but we do need Labour’s front bench to do their job and join us in taking on the Tory government.”
In a statement, Mr Corbyn said: “I understand the difficulties MPs representing constituencies which voted strongly for Leave or Remain have on the EEA amendment to the EU Withdrawal Bill.
“The Labour Party respects the outcome of the EU referendum and does not support the EEA or Norway model as it is not the right for option for Britain.”
The EU Withdrawal Bill will return to the House of Lords on June 18.
Additional reporting by Alison Little