Raheem Sterling tried to grab Joe Gomez by the neck and said "you think you're the big man now?" during the England pair's row at St George's Park, Sky Sports News understands.
After they clashed towards the end of Liverpool's 3-1 win over Manchester City on Sunday, emotions carried over into the England team canteen on Monday.
Gomez was the first Liverpool player to arrive at the training base and was with a group of England team-mates when Sterling walked in around lunchtime.
Sky Sports News understands the Manchester City forward took offence and said to Gomez "you think you're the big man now?", which the other players thought was 'banter'.
Sterling is then thought to have walked up to Gomez before trying to grab his neck, Gomez reacted angrily and the two players had to be separated by team-mates before the pair left the canteen.
That is when Liverpool captain and senior England midfielder Jordan Henderson is believed to have stepped in to play peacemaker, after Sterling had packed his bags and was preparing to leave the camp.
Henderson, who was yet to arrive at St George's Park, was tipped off by a member of staff at Liverpool about the falling out, so arranged for both Sterling and Gomez to meet in one of the players' bedrooms.
It is there Henderson mediated on the phone while both players gave their version of events at Anfield and the England canteen. It is understood the call lasted approximately 25 minutes.
The rest of the England squad believed Sterling had left and was not coming back after he exited the private part of the Hilton hotel reserved for the players.
Sky Sports News understands the atmosphere between Sterling and Gomez at the time was too hostile for both of them to remain together in camp.
But Sterling is understood to have apologised to Gomez, the two players ended the discussion as friends and, for them, the matter is at an end.
Sterling also confirmed in a subsequent Instagram post that he and Gomez had "figured things out and moved on".
Gomez is also understood to have issued a personal plea to manager Gareth Southgate not to send Sterling home, which happened after Henderson's intervention and after the City player had left the reserved area of the hotel.
England boss Southgate has decided dropping Sterling for the next European Qualifier against Montenegro on Thursday is sufficient punishment.
Gomez and Sterling both appeared at England training on Tuesday with the Liverpool man sporting a scratch beneath his right eye.
Sky Sports' Gary Neville...
"I've been involved in quite a few of these things over the years with England and there is no right or wrong in a way, in the sense that I've seen managers sweep it under the carpet, and try to keep a low profile on these sorts of things.
"I've also seen managers go public, as Gareth has. What I would say is that the decision that Gareth has made... I feel like it's the right one without knowing the detail of what's gone on.
"There's nothing worse than sweeping it under the carpet, and then all the players going back to their own rooms they all share together, and having that feeling that they're all talking about you being weak, and that you've not dealt with it because he's a big player and that he's shied away from a big decision."
Off Script: Nev's United island with England
In a previous Off Script last month, Neville sheds light on how club rivalry manifested itself to England's detriment on international duty
'He knows he overstepped the mark'
Sky Sports News reporter Kaveh Solhekol...
"Gareth Southgate has been firm but fair. The last thing he wants is for cliques to appear in his squad like the days when Manchester United and Liverpool players used to eat at separate tables.
"As a leader, Southgate had three options in this case. He could have downplayed it and dealt with it behind closed doors, he could have sent Raheem Sterling home or he could have dropped him from the next game.
"By choosing option three he has kept arguably his best player in his squad as well as sending a strong message that he will not tolerate club rivalries disrupting the peace and harmony at St George's Park.
"Southgate has four Liverpool players in this squad and two from Manchester City. Apart from this one-off incident there is no issue between Joe Gomez, Trent Alexander-Arnold, Alex Oxlade-Chamberlain and Jordan Henderson, and Sterling and John Stones."
After the Montenegro clash at Wembley, England travel to Kosovo on Sunday, knowing just a point from these next two games will be enough to qualify for Euro 2020.