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Few Britons have heard of Chris Rennard, the party's former chief executive at the centre of the imbroglio, and an internal party investigation concluded that sexual harassment allegations against him could not be proved "beyond reasonable doubt".
But his refusal to apologise to four female party workers for distress they say he caused, and the perceived mishandling of the matter by Nick Clegg, party leader and Britain's deputy prime minister, have put his leadership under pressure.
"It (the party) is divided into two camps over what, in the grand scale of things, is a storm in a teacup," Anthony Greaves, a senior Lib Dem peer, told BBC TV.
"Each side is standing behind their own lines chucking grenades at the other. People on both sides are in entrenched positions and all this is going to do is to destroy the party."
The centre-left party's woes matter because its support allows Conservative Prime Minister David Cameron to govern despite his failure to win a majority in 2010. The Lib Dems are also the most pro-European of Britain's parties.
Opinion polls suggest that no one party will win outright next year either, making another coalition with the Lib Dems possible despite their poll support collapsing from 23 percent at the last election to around eight percent now.
Many of those who voted for them in 2010 accuse them of selling out by agreeing to govern with the right-leaning Conservatives and helping to push through right-wing policies.
With officials turning on one another, the party suspended Rennard's membership on Monday and ordered an investigation into allegations that he had brought the party into disrepute.
In a statement, Rennard, who is also a lawmaker in the upper house of parliament, denied any wrongdoing and said he could not apologise for something he had not done. He noted that the police had investigated him last year and not charged him.