A senior Lib Dem source has said that "obviously we disagree" with Lord Steel and that reinstating Lord Rennard "is not going to sort it out".
The former Liberal leader had told ITV News the party should lift the suspension on the former chief executive, who is accused of bringing the party into disrepute by refusing to apologise to women who complained about him.
The former Liberal leader Lord Steel has told ITV News the Liberal Democrat party has got itself in an "awful mess" over the Lord Rennard saga.
He said: "The first rule in politics is when you're in a hole, stop digging and the fact is they have been digging on both sides for the past two days."
The former Liberal leader Lord Steel has called on the party to lift the threat of expulsion hanging over Lord Rennard.
He said the party had become obsessed with the allegations against its former chief executive, which was "very, very damaging".
He also appealed to Lord Rennard to drop his threat of legal action over a fresh inquiry into claims he'd brought the party into disrepute.