He made the comments during a nomination meeting on Wednesday night at a church hall in the Labour leader’s Islington North constituency.
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The party’s deputy leader, Tom Watson, who has tried to persuade Corbyn to quit, raised the pitch of the rhetoric by saying some of the new members were Trotskyite infiltrators from the far-left, who saw Labour as a vehicle for revolution.
Mr Smith also claimed that he, not Mr Corbyn, could take Labour to being a government-in-waiting, ready to take power at the next election.
At the hustings, Mr Corbyn said he had been “shocked and disappointed” by the referendum result but added: “We now have to face the facts – the country voted for a Leave decision in that referendum”.
Before the vote, however, comments from the floor caused angry shouting, with one audience member alleging that “it is very hard in this country to get elected without the support of [media tycoon] Rupert Murdoch and the Israeli ambassador”.
The Pontypridd MP, who resigned as Shadow Work and Pensions Secretary, said working on the front bench under Mr Corbyn was “futile” as he is not capable of winning the next election.
Ballot papers for the leadership election will be sent out in the post (Labour Party members only) and by email from the week starting Monday, August 22.
And turning to Mr Corbyn, he said: “Only a third of Labour voters think you would make a better PM than Theresa May. I don’t want to be engaged in a protest movement talking to itself”.
Mr McDonnell, chairman of Mr Corbyn’s leadership campaign, said when people joined they were told “very clearly” they would be able to vote in the leadership contest and “to deny them that democratic right flies against all the traditions of our party”.
Ms Dugdale has also spoken out against Mr Corbyn’s bid to stay on as leader.
Mr Smith opened the debate saying: “My flagship policy would be reinvestment in this country, I think we have for many years now seen many areas fall behind”.
Mr Corbyn’s allies urged the party not to appeal against the ruling, stating that members’ money should not be used to try to stop them from voting.
“We’ve had mass rallies, we’ve had a big party and we’ve lost successive elections”, he said.
It has just been revealed the UK’s third largest union, the GMB, has backed Smith.
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He said shadow chancellor John McDonnell had put together an economic strategy and analysis and said: “I say to all members of the Parliamentary Labour Party: Let’s get on board and get together and put it to the Tories”.
