Former Labour members Caroline White and Bill Cherrington will head the United Sandwell Group, which has been formed to "stand up for what's right" and challenge "corruption" in the Labour group.
It comes against a backdrop of deep political turmoil in the Sandwell group, which was heightened after a number of long-standing councillors were deselected by the party's national office before the recent local elections.
Ms White and Mr Cherrington – along with Councillor Julie Webb – were booted out of Labour over allegations they campaigned for opposition candidates in the poll.
The authority is set to unveil its third leader in four months tomorrow after Yvonne Davies was elected to head the Labour group, which previously held all 72 seats on the council.
In a statement, Ms White said: "Following on from the deselection of many good, honest councillors, the candidates that were forced upon us without consultation of either ward or branch members, the expulsion of more good councillors and the mass resignations of Cabinet members I feel that the Labour Party is no longer interested in what’s best for the people of Sandwell.
"I cannot support Yvonne Davies as leader. She has been a disruptive influence in the council for many years. I can have no confidence in her as a leader or in the Cabinet I fear she will choose.
"I cannot see an end to the corruption in the Labour Party and fear for how it will bring the council into disrepute.
"We, the new United Sandwell Group, will stand up for what’s right and look to protect the best interests of the people of Sandwell and the council itself."
She added that the group would welcome "any other disillusioned members to join us and help to make Sandwell a place to be proud of".
Mrs Davies described the attack on her as "petty political nonsense" and said she was focused on working hard for the people of Sandwell.
"I would say to them that in 12 months time I will be happy to be judged on the job I have done," she added. "It is disappointing to see that I have been criticised personally, but I have broad shoulders and I would expect nothing else from a member of the opposition.
"The Labour Party got a full house here in the local elections, so the people clearly have faith in us to deliver."
West Midlands Labour said: "This move appears to have far more to do with personal grievance than political principle.
"Voters should be given the opportunity to deliver their own verdict on this so-called group at the ballot box."
Ms White was told she was no longer a member of the Labour Party after she was alleged to have campaigned for former Labour councillor Dave Hosell in this month's local elections.
Mr Hosell was among seven councillors who were deselected by national office, amid claims that Corbynite councillors had been brought in to replace them as part of a hard-left takeover of the Sandwell group.
Mrs Davies succeeds Councillor Steve Trow, who stood down after just two months having replaced Steve Eling, who was suspended and placed under investigation by the Labour Party over an unspecified complaint.
An application to register the United Sandwell Group with the Electoral Commission is due to be submitted in the coming weeks.