Prime Minister Vajpayee was "disturbed" and wrote down his resignation letter in his Parliamentary office.
"Parliament was in session," Singh said on NDTV's 'Walk the Talk' programme.
"He (Vajpayee) pulled a piece of paper and he started writing his resignation by hand. I held his hand and he looked at me severely and I said what are you doing. Don't do this," Jaswant said.
"I somehow I persuaded him. We went to his house. We were able to defuse the situation," Singh said.
Singh said he alongwith Vajpayee, Advani and Arun Shourie were flying to Goa for a BJP meeting when the conversation relating to the Gujarat Chief Minister cropped up.
"He (Vajpayee) asked, Gujarat ka kya karna hai (what should be done about Gujarat ?...there was silence for sometime. He then said, Gujarat ke bare mein sochna chahiye. Then Advaniji went towards the bathroom...Atalji said, poochhiye fir ky karna hai (ask him then what should be done)? I went and asked Advaniji. Advaniji just said one phrase -- bawaal khada ho jayega party mein (there will be uproar in the party," Singh said.