He famously clashed with moderniser Neil Kinnock but is now back in the fold under Jeremy Corbyn's leadership. Here's what you need to know.
Who is Derek Hatton?
The former tailor's apprentice shot to fame as the radical and outspoken deputy leader of Liverpool city council in the 1980s.
He was a leading member of the Militant tendency, a Trotskyist group whose mission was to infiltrate and take over the Labour party.
Despite his revolutionary socialist agenda, Hatton – known as Degsy – was known for wearing Armani suits and driving a flash Jaguar XJ6 with a personalised number plate.
The “loony left” council's hardline policies caused ructions in the national Labour party and Hatton was expelled in 1986.
He faced a seven-year police probe into his finances but was eventually acquitted after an eight-week corruption trial in 1993.
Hatton also worked as a radio DJ, male model, panto star and after-diner speaker.
Ten years ago he reemerged as a millionaire property developer flogging sunshine flats and villas to Brit expats in Cyprus.
He is now 71.
Why was Derek Hatton thrown out of the Labour party?
Hatton and his hard-left comrades at Liverpool council were blamed for plunging the city into financial ruin.
They joined the rate-capping rebellion, refusing to set rates in a challenge to Margaret Thatcher's government.
The Militant-dominated Labour group then voted for an illegal budget with a £30million overspend – the same as the amount they claimed was "stolen" from the city in grants.
It caused havoc as the council ran out of cash and it infamously had to send out redundancy notices to thousands of staff by taxi.
The budget row caused national outcry and brought Hatton into conflict with the Labour leadership.
Hatton was seen heckling as Neil Kinnock famously fronted up to Labour's hard-left in a rousing speech at the 1985 party conference.
The following year Hatton was expelled from the party for being a member of Militant, which was ruled to be in breach of the party constitution.
The secretive Militant faction was seen as partly responsible for making Labour unelectable during its wilderness years between the late 70s and Tony Blair's election triumph in 1997.
Has Derek Hatton rejoined Labour?
Hatton had an application to rejoin Labour turned down in 2015, but he tried again last year.
On February 18 it was reported Hatton had been allowed to rejoin the party by Labour's disputes panel.
The news emerged on the same day the “gang of seven” MPs split from Labour because it has been hijacked by the far-Left.
Labour moderate MPs blasted the move. Ian Austin called it “disgraceful” and Ian Murray said it was a “slap in the face”’.
Conservative MP Paul Masterton called it an "incredible decision", adding: "The timing of this announcement is unbelievable.
"Labour probably lining him up as a candidate for a by-election."
Tory Chris Green MP added: "Someone ought to tell Labour that that ejecting Luciana Berger and taking Derek Hatton back in is not an upgrade."
Hatton boasted: in a BBC interview: "Of course it's good to be back, in fact in a way I've never left.
"For 34 years I've stayed absolutely solid with the Labour party. Never joined any other party, never actually voted for another party. Never campaigned for another party."
And he attacked the rebels saying: "When you look at the seven who now have left you think, well, how pathetic is it, how really strong are you within the Labour movement to want to run away when there is something that you disagree with?"
Liverpool mayor Joe Anderson said: “I’m happy to have Derek Hatton back in the Labour Party.
“What happened in the past was a product of its time, but he has now committed himself to the kind of sensible socialism that we’re doing here in Liverpool and want to see UK wide.”
Last year Hatton said he had been "inspired" by Jeremy Corbyn as he spoke of his wish to rejoin the party.
He said: "Many people, myself included, probably never thought we would witness an unswerving socialist like Jeremy Corbyn at the helm."
A Labour spokesman said: "We don't comment on individual membership statuses."
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