Lib Dem peer says his efforts to "expose and end cash-for-peerages in all parties, including our own" have failed.
Peer leaves the party and warns it is "heading for disaster" under Clegg.
"Appropriate steps" will be taken against the rebellious peer.
The party would perform no better under Cable, and Lib Dem voters and the party's 2010 supporters want him to stay.
Ed Miliband benefits when leftwing voters desert Nick Clegg but he suffers when moderate positions on Europe and immigration are shunted to the margins.
The Lib Dem leader should seek a renewed mandate from his party.
Clegg is unwilling to fall on his sword and the party isn't prepared to force him out.
A year after almost winning the Eastleigh by-election, Ukip didn't gain any council seats there.
The party held onto Eastleigh and Sutton but lost Cambridge and Kingston.