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The Victorian Liberals are resisting intervention from federal counterparts who say the dispute involving an exiled Victorian MP is "a whole mess" damaging the party's brand.
Moira Deeming was suspended from the parliamentary party for nine months in late March after attending an anti-transgender rally in Melbourne where neo-Nazis performed the "sieg heil" salute.
She has threatened to legally challenge her suspension from the state party.
Opposition Leader Peter Dutton said he was considering stepping in to deal with the growing issue because it didn't help the Liberal brand or broader party movement.
"The whole mess needs to be sorted out sooner rather than later," Mr Dutton told ABC Radio on Friday.
"The Liberal Party should have been more competitive at the last state election. They weren't and they need to be a credible alternative government."
But Victorian Opposition Leader John Pesutto does not believe the federal branch will intervene at a state level.
"I don't believe it's necessary," he told Sky News on Friday afternoon.
"I'm a new leader and I'm determined with my colleagues to reform the party to make it, one, an effective opposition and, two, the next government."
Mr Pesutto said he was yet to speak to Mr Dutton about his comments, although he had no issue with the federal leader.
Ms Deeming used an email to demand Mr Pesutto agree to a media statement exonerating her of being a Nazi or Nazi sympathiser by 2pm on Thursday or face legal action.
Ms Deeming confirmed she would make good on her threat in a follow-up email to colleagues, saying the leadership was unwilling to work on a solution because of her setting a deadline.
Mr Pesutto denied he said Ms Deeming was a Nazi or a Nazi sympathiser.
He confirmed it was "on the table" for her to be expelled from the party over her planned legal action.
"This is a very serious step if it's taken but there's already a number of things that the party room is considering," Mr Pesutto told ABC News Breakfast earlier on Friday.
"I will consult with them. I'm not going to air those publicly."
