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It followed a bitter and hotly contested local vote of party members in Hotham on Sunday and Monday which favoured lawyer Geoff Lake who has been backed by Mr Crean and former premier Steve Bracks over rival Rosemary Barker, who has been backed by Mr Shorten.
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Mr Lake is a member of the National Union of Worker's faction, which is not part of the agreement.
Labor's so called ''stability deal'' an orderly carve up of Victorian seats designed to prevent factional waring appears to be disintegrating in a major re shaping of the power sharing arrangements.
Mr Tillem, who is loyal to Senator Conroy, was on Tuesday night selected to contest the third senate spot, while local principal Joanne Ryan, who is backed by Prada Bag New Ms Gillard, was selected for Lalor.
Another source said the new arrangement represented a serious dilution of Mr Shorten's power.
Labor's central public office selection committee was last night meeting to decide on a candidates for former prime minister Julia Gillard's seat of Lalor, Simon Crean's seat of Hotham, and Burberry Bag Small
Mr Andrews is on the left, but was supported by Labor Unity as part of the deal.
Senator Conroy also backed Mehmet Tillem for the third Senator position, while Mr Shorten supported lawyer Kimberley Kitching, who is married to former blogger Andrew Landeryou.
Mr Lake will contest the seat of Hotham.
The left abstained from voting, ensuring that Mr Lake was installed as the Labor candidate for Hotham.
Barely a day after federal Labor caucus endorsed Prime Minister Kevin Rudd's party reforms designed improve harmony and strengthen grassroots support, a major rift has opened in the dominant Victorian right Labor Unity faction, lead by Bill Shorten and Stephen Conroy.
But in a major upset, Senator Conroy has walked away from the arrangement, instead backing Mr Lake over Ms Barker. As a result the ''Shortcon'' grouping the glue holding together the Labor Unity faction appears to have fractured.
A key source said the stability deal was dead, warning of a return to the factional warfare and dirty dirty tricks of the past. The source also said the implications for Opposition Leader Daniel Andrews could be serious.
Victorian senate position.
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Senator Conroy was believed to have been bitterly disappointed over Mr Shorten's decision to switch his support from Ms Gillard to Mr Rudd. The rift between the two power brokers has raised the prospect of a new power sharing arrangement in Victoria which would exclude Mr Shorten and the Australian Workers Union.
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seat choices hit turbulence
Under the stability agreement, the left was supposed to support the candidate put forward by Labor Unity.
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