Michael Foster, whose family has given the Labour Party £400,000 since 2010, wrote a newspaper column in which he strongly criticised the Labour leader.
No stranger to controversy, Mr Foster has repeatedly criticised Mr Corbyn and was suspended from the party after he compared the left-wing leader's staunchest supporters to Nazi stormtroopers.
Writing for The Sunday Times, Mr Foster said the party was facing “annihilation” at the ballot box because Mr Corbyn was “blinkered” and lacked the capabilities required to win an election.
He made the startling claim that supporting the current leader “means supporting a political strategy that kills people” and vowed to oppose Mr Corbyn in his Islington North constituency, where the party leader holds a majority of more than 20,000 and has been MP since 1983.
Mr Foster said there was still time for Mr Corbyn to quit if the party performed poorly in the forthcoming council elections on Thursday.
“There are a lot of things a political party looks for in a leader. Jeremy Corbyn possesses none of them. Because of him, Labour faces annihilation at the polls,” he wrote.
”If the results are as bad as predicted, then Jeremy should stand down voluntarily and let someone else lead the fight in June.
“If he does not - and I don't believe he ever would - I would be very happy to fight him and his fellow travellers on the extreme left of the party by standing in his constituency of Islington North.”
The retired showbusiness agent was suspended by the party after he launched an unsuccessful High Court challenge to prevent Mr Corbyn from automatically being included on the ballot paper when Owen Smith made a bid for leadership.
He tried to persuade the court that Mr Corbyn should have to win the support of 20 per cent of his MPs before being allowed on the ballot paper, angering Corbynites in the process.
Experts have predicted Labour will suffer heavy losses at the council elections, but Mr Corbyn has indicated he will not stand down even in the face of a no confidence vote from his MPs.
Mr Foster wrote: “Jeremy's activist supporters will ensure this blinkered, ineffective leader is immediately elected again.
“Unfortunately, supporting him as leader means supporting a political strategy that kills people.
”By 1997 after 18 years of Tory government, the waiting time for a heart operation was up to 18 months, and by 2003 Labour had reduced the average wait to just four months.
“But now as waiting lists get longer through lack of Tory investment in the NHS, more people die waiting for their operation, at about the same rate that Corbyn and his fellow travellers make Labour more unelectable.”
Mr Foster was an unsucessful candidate for Labour in the 2015 general election when he stood as a candidate for the Cornish constituency of Camborne and Redmuth.
Shadow Chancellor John McDonnell called Mr Foster’s comments “appalling” and called for action to be taken against him.