Many Labour lawmakers are unhappy with the party's direction under leader Jeremy Corbyn, a veteran socialist who took charge in 2015 with strong grass-roots backing.
They accuse him of mounting a weak opposition to the Conservative government's plans for leaving the European Union, and of failing to stamp out a vein of anti-Jewish prejudice in the party.
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Jewish MP Luciana Berger, one of those who announced Monday she is leaving, said she had come to the "sickening" conclusion the party is "institutionally antisemitic."
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Berger said she was "leaving behind a culture of bullying bigotry and intimidation" and was looking "forward to a future serving with colleagues who respect each other."
The quitters are only a fraction of Labour's 256 lawmakers. But this is the biggest split in the party since four senior members quit in 1981 to form the Social Democratic Party.
Another, Mike Gapes, accused the party's leaders of being "complicit in facilitating Brexit."
The seven lawmakers said they will continue to sit in Parliament as the newly formed Independent Group.
Corbyn said he was "disappointed that these MPs have felt unable to continue to work together for the Labour policies that inspired millions at the last election and saw us increase our vote by the largest share since 1945."
Those Labour lawmakers who quit in 1981 eventually became today's Liberal Democrats, a centrist party that has failed to topple the dominance of Britain's two main political parties, Conservatives and Labour.
The new Labour splitters urged others to join them in creating a new centrist force in British politics.
"We do not think any of the major parties is fit for power," said lawmaker Angela Smith. "People feel politically homeless and they are asking and begging for an alternative."