While it’s clear that relations between NBC and “Tonight Show” host Jay Leno are deteriorating by the day-- as the comic continues to mock the network’s ratings decline on air-- a source close to the situation told FOX411’s Pop Tarts column that Leno still intends to ride out his contract through to the 2014 season.

“NBC would probably love it if Jay tried to get out of early because he’s clearly bitter,” said the source. “But Jay wants to stay to the end, and keep peeving everyone at the network off.”

However, that’s not to say that the mood at the Burbank-based “Tonight Show” sound stage is exactly optimistic. We’re told that many members of Leno’s staff are concerned that their work could dry up at any time, with some already exploring other work possibilities.

“The environment is bad, people are nervous,” continued our insider. “Nobody wants to leave because “The Tonight Show” is such a great gig… But people are worried, to say the least.”

According to the source, execs are going all-out to make the “Tonight Show’s” rumored relocation to New York City as smooth as possible, and that includes rushing to get Fallon’s new studio up and ready. (You know, just in case.)

And even though Leno “joked” to paparazzi this week that he “hopes” Fallon replaces him on the coveted American television program, the comedian – who is still number one in the ratings and has been dominating for two decades –is reportedly far from ready to retire. There is plenty of industry talk that Leno may take his skills over to Fox, yet it’s just not enough to abate his L.A. team’s growing anxiety.

And the fact that news of Leno’s possible retirement was “leaked” to the media didn’t make things easier, said Hollywood public relations expert Roger Neal.  

“It is a big mistake to have let this out so far in advance, since this will not be Jay Leno’s first time ‘retiring’ from the show and given how much money he has made the network, this should have been a big send-off for him,” Neal said. “This whole thing between Leno and NBC is likely to end in a legal fight, unless Leno takes the high-road and simply says ‘I’m done.’”

The handling of the situation from now on could also prove to be particularly problematic for NBC. Viewers could potentially jump from Leno to Fallon in early anticipation of his exit, turn to other late-night stars, or simply turn the television off, explained pop culture expert Scott Huver.

“It’s in NBC’s best interest to make sure Leno feels as comfortable as possible with the transition, lest he use his popularity and on-camera bully pulpit to create another firestorm of bad press for the network,” advised Huver. “I imagine NBC would like nothing better than to conclude Leno’s contract as early as possible now the news of the replacement plan is out there. However, they certainly should give him a proper due and respectful exit.” 

Huver added that it may be in Leno’s best interest to start playing nice with NBC, though other comedians are still sure to take jabs at his behind-the-scenes drama.  

“If Leno resists, any sour grapes attitude might inflict further damage to him as well as causing major P.R. nightmares for NBC. Meanwhile, Fallon has carefully cultivated his own ‘nice guy’ image, and he needs to tread lightly so it didn’t doesn’t come across as though he’s an ambitious upstart forcing out one of the most popular personalities in broadcast television,” Huver continued. “And for months and months to come, all their rivals are free to have a field day with the situation in their monologues.”

And chances are NBC’s former funnyman – the dramatically ousted Conan O’Brien – will be the one to lead the way.

“I can’t wait to see Conan find a way to enjoy the latest round of controversy from the comfort of his own late night desk,” Huver added. “Along with some Conan-esque commentary on the whole debacle.”

NBC did not respond to a request for comment.

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