Angela Eagle, the former shadow business secretary, has also launched a challenge, arguing Mr Corbyn was unable to “provide the leadership” to win a general election.
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Ms Eagle said the fee was a “pretty good investment for the whole future of democracy”.
The group has decided the Labour chief does not need to get the support of at least 51 of his MPs and MEPs to take part in the contest.
Amid complaints from MPs about threats and online abuse, a member of Labour’s National Executive Committee (NEC) said Mr Corbyn had failed to do enough to stop it.
But the ruling will come as a major blow to the most of Labour’s MPs who are desperate to overthrow the party leader.
“I think that it would be alien to the traditions of the Labour Party”.
Owen Smith, a former member of Corbyn’s shadow cabinet, said he was standing in the contest because the party needed a leader who was both “radical and credible”.
Registered supporter status, which gives people a one-off vote if they pay a fee, will cost £25 this time round instead of the £3 payment that saw thousands of Mr Corbyn’s supporters sign up in the run-up to last September’s vote.
Mr Smith’s announcement came amid reports the NEC had suspended all local Constituency Labour Party meetings until the end of the leadership campaign following complaints of harassment and intimidation.
“The issue raised by my application to the court is the proper interpretation of the rules of the party”, he told BBC Radio 4’s Today programme, saying that Corbyn being automatically on the ballot paper for the leadership election was “essentially a legal issue”.
Mr Corbyn said he was “delighted” with the result of the meeting of the NEC, which also imposed restrictions on who could vote in the contest.
Owen Smith has confirmed that he will stand for the Labour leadership.
“That is not the attitude of a person who could ever help unite this party and I hope that Labour members will vote in the fresh leadership we need”.
Corbyn retains strong support among the party’s rank-and-file members, meaning that if he does make the ballot paper he could hold on to power and prolong the stand-off with MPs.
Eagle urged Corbyn to “get control” of his supporters after a brick was hurled through her office window.
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Tom Watson, deputy leader of the Labour party, said: “This legal challenge is very unhelpful and destabilising to the Labour Party”.
