Viewers of the Essex-based reality show saw Lydia becoming emotional last night after allegations surfaced that Arg had enjoyed a threesome while in a relationship with Lydia.
Speaking to the TOWIE official website, Lydia said: "I think I'm best off not having James in my life because when he is in my life it's more complicated and stressful and I get hurt and upset.
"I'd rather have an easy life with my friends than go through this again. I think eventually we could be friends again but I think at the moment it's a little bit raw and we need space.
"We spent way too much time together and got caught up in it too quickly and now we need a bit of space and time by ourselves again."
TOWIE viewers will know that Lydia's sister Georgia was against a reconciliation with Arg, going as far as saying it made her feel sick when Lydia spoke about sleeping with him.
Lydia said she knew that Arg had cheated on her and it was frustrating her that Arg couldn't just admit to the new rumour.
She added of their renewed relationship: "I was silly to even go there and think we could. I feel humiliated really."
Meanwhile, viewers saw Arg moving out of his mum's home for the first time - and getting some words of wisdom when he revealed Lydia currently wasn't speaking to him.
Arg's mum said: "I can't forget what we all went through when you broke up with Lydia two years ago. You were in a dark place and we were worried and upset. You've made a few mistakes but at the end of the day, there are only so many times you can say sorry and I think you've done it now, son."
Later in the episode, Arg admitted to ex-girlfriend Gemma Collins that he was feeling frustated about the entire situation.
"I do feel pissed off in some ways. I shouldn't care what other people think but I know how Lydia feels about me and the way we act around each other. It's almost like she's making out she doesn't like me the same way I like her and she's not interested. I know that isn't true because of the way it is when it's me and her.
Gemma then offered her advice.
Be a man and own this situation. Knock on her door and say, 'Look, I'm in love with you. Yes I messed up in the past, you can't keep bringing it up. I want you more than anything else in the world. I love you. I can't cope with this friends bulls**t. Will you be mine?'
"If she doesn't tell you yes, then for your own heart's sake you have to walk away."
TOWIE continues Wednesday at 10pm on ITV2.
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