The Victorian Liberal Party is in more turmoil after a controversial MP reportedly launched legal action over her suspension.

Liberal Moira Deeming reportedly made good on her threat to call in the lawyers on Thursday, after giving Opposition Leader John Pesutto a deadline to issue a media release stating he does not believe she is a Nazi or Nazi sympathiser.

Ms Deeming claimed Mr Pesutto hadn’t held up his end of her nine-month suspension deal after she attended an anti-transgender rally in Melbourne where neo-Nazis performed the sieg heil salute.

The now-crossbencher gave Mr Pesutto until 2pm on Thursday to issue the statement or face legal action to challenge her suspension.

Mr Pesutto insisted the resolved terms were that a joint statement would be prepared by his office and Ms Deeming’s team, along with further confirmation a dossier contained no accusation she was a Nazi or Nazi sympathiser.

“Those things have been done,” he said.

He said he was not worried by Ms Deeming’s threat to sue.

“If Moira Deeming is going to take action to sue me – and effectively sue the parliamentary Liberal party and the Liberal Party – I think that would be a matter for her to consider,” he said.

“She’s free to do what she wants. I’m focused on holding the Andrews government to account.”

By later Thursday afternoon, multiple outlets were reporting that Ms Deeming had made good on her threat.

“Given that the leadership did not make the statement of exoneration, or confirm my return [to the party], and that no mediation or even any minutes exist to settle this dispute, I have advised my lawyers to prepare a legal challenge over my suspension, because I believe that we need to come together as colleagues and have a do-over meeting,” she said in an email.

“If my suspension is re-confirmed, we can make sure that the legal conditions are explicitly agreed upon and then we can all get back to working for Victorians.”

Ms Deeming’s threat came after several MPs accused Mr Pesutto of presiding over a culture of bullying and intimidation, resulting in upper house MP Renee Health leaving a party room meeting on Tuesday in tears.

The anonymous allegations in the Herald Sun newspaper claimed Mr Pesutto accused Ms Heath of tampering with minutes from a meeting in late March to expel Ms Deeming.

Ms Heath is the party room secretary and required to take down meeting minutes.

Mr Pesutto denied he was a bully and said he was not responsible for reducing Ms Heath to tears, saying he only raised a “process” issue about the minutes.

“What’s reported in the article today is completely wrong,” he said at state parliament on Thursday.

“I’m not asking you to take my word for it but I will ask you to talk to [my] colleagues, particularly those who went on the record. They told you that none of what’s reported actually happened.”

The Hawthorn MP said he was trying to reform the parliamentary Liberal Party after three consecutive election defeats and called on his team to unite behind the cause.

“If people don’t want to be a part of that reform project, then I think it’s important they consider their position,” Mr Pesutto said.

“Do they want to remain in the parliament long term?”

Opposition equality spokesman James Newbury and former party leader Matthew Guy both described the group as “terrorists”.

“They’re holding the Liberal Party hostage,” Mr Newbury said.

“They need to work out whether they’re Liberals or whether they want to sit on the crossbench. Everybody’s had enough.”

Mr Pesutto won a tussle for the leadership of the parliamentary Liberal Party over Berwick MP Brad Battin by one vote after the Coalition was resoundingly defeated at last November’s state election.

Mr Guy said the disgruntled MPs should speak on the record if they have allegations to air.

“The vast majority of us back John Pesutto and continue to back John Pesutto because he’s a very good leader,” he said.

“We’re not going to allow John Pesutto to be attacked in this way by a very small few who need to sit with us or not.”

– with AAP