Keegan doomed ... now for the row over his £8m Newcastle compensation

Kevin Keegan was talking to his lawyers last night as he considered launching a claim for constructive dismissal against

After a day of drama in which owner Mike Ashley insisted Keegan had not been sacked as manager, the ex-England boss was in a Manchester hotel with his legal advisers. Newcastle do not want to pay the compensation on his contract, believed to be £8million.

The 57-year-old believes his position at St James' Park has become untenable after a day of boardroom posturing. Although players and staff are expecting Keegan to take training this morning, his family and friends believe his time is over. His contract obliges him to pay more than £1million in compensation if he walks out and Keegan is exploring how to resolve the situation without actually resigning.

The club have admitted Keegan and Ashley, along with members of the board, held two heated meetings, as exclusively revealed by Sportsmail yesterday.

Transfer policy, the failure to tie Michael Owen to a new contract, the role of football director Dennis Wise and the aborted sale of Joey Barton, which fell through on transfer deadline day, were discussed. The Newcastle board were convinced Keegan had walked out following a ferocious row.

He accused them of 'false promises' and they told him he knew he would be working within a budget when he returned to the club.

'We are not Chelsea or Manchester City,' one senior member of staff is said to have told the manager during the blazing row.

Keegan left the second meeting yesterday morning believing he had been sacked but Newcastle put out a statement seven hours later claiming he had not been dismissed but remained an integral part of the club's future. This came a f t e r thousands of fans gathered outside the ground calling for Ashley's head.

The billionaire sportswear tycoon is understood to have been unsettled by the adverse reaction of fans to Keegan's departure and the prospect of Wise taking over the reins with his former Leeds assistant and Chelsea team-mate Gus Poyet.

The current regime is already reeling from the lowest attendance at St James' for more than a decade for the opening home fixture with Bolton, with an unheard of 4,500 empty seats. Huge pro-Keegan demonstrations are expected at their next game against Hull City on September 13.

Keegan and Ashley clashed in a heated exchange over a number of issues which have been coming to a head for several weeks, with Keegan unable any longer to suppress his anger and frustration.

He was upset that the entire squad was put up for sale on Monday as the transfer window closed and that two more players, Xisco and Nacho Gonzalez, were signed without his knowledge. Keegan was also disturbed by the plan to sell Joey Barton behind his back.

Like summer additions Danny Guthrie, Fabricio Coloccini and Jonas Gutierrez, the latest signings have been scouted and hired by Wise and his fellow director Tony Jimenez, with Keegan having little say in the process.

Keegan, who resigned as Newcastle manager in 1997 over the club's Stock Market sale, was fully aware of Wise's pending arrival when he took over but has not been comfortable with the reality of being a manager in name only. Former Ireland and Newcastle defender John Anderson, who played alongside Keegan on Tyneside in the early Eighties, said: 'It's no surprise. I think the way he has been treated has been shabby to say the least. From the outside it looks like he's been let down.'

John Beresford, who played under Keegan during his first spell as manager from 1992-97, said: 'I can't tell you how bad this will be for the club. This could be devastating for Newcastle. Kevin Keegan had put the club back on track again - the fans were starting to feel pride in the club again.'