May 17, 2017, 12:37 p.m.
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The nine-strong Labour group signed a formal deal with Conservative and independent groups, leaving the SNP - the biggest party - in opposition.
Scottish Labour leader Kezia Dugdale said the party's executive did not support the coalition.
The party said councillors could be suspended if they supported the deal.
A party spokesperson said: "A panel of the Scottish Executive Committee of the Scottish Labour Party, made up of trade union representatives, local party representatives, affiliated groups and the leadership, took the decision on Tuesday evening to reject a proposed power-sharing deal in Aberdeen.
"Any Labour councillor who does not stand down from this multi-party arrangement will be in breach of Labour Party rules and may be suspended from the party."
Labour's Barney Crockett was elected Lord Provost at Wednesday's meeting.
Conservative Tom Mason was elected as Deputy Provost.
And Liberal Democrat councillor Jennifer Stewart left the party group to become an independent.
Discussions among all political groups on the local authority have been continuing since the election results were declared on 5 May.
The SNP became the biggest party, but did not have enough councillors to form a majority administration.
A total of 19 SNP councillors were elected, up from 16 in 2012, as the Conservatives surged to 11 from three and Labour's total halved to nine. Two Independents were returned.
The Lid Dems were down one to four, but later announced they would not enter into a coalition to run Aberdeen City Council.
This meant a possible SNP/Lib Dem coalition could not happen.