Short answer: No, those rules probably don't exist
I'll admit that I am not familiar with the rules of 3.5, but even so, nothing that he's doing sounds like it's actually breaking any rules I've ever heard of. Abusing them, maybe, but it does look perfectly legal. So give up on that approach - it won't work.
That's not the real problem here
The real problem is that your GM is doing something that, by your own admission, nobody else in the group enjoys, enough so that it is actually getting in the way of the players' enjoyment of the game, and that the GM apparently didn't care when you told him so. You've tried telling him that, and it didn't work. He said he'd change if you showed him rules saying he can't do that, but you're not going to find any such rules. Assuming that these statements are accurate, you have a GM who isn't that interested in the players' fun, and who is not open to feedback. You've already tried the usual solution of talking to him, and it's not the kind of situation that can be resolved in game. So what do you do?
Talk to him again
Talk to the other players
Since he's already rejected your feedback and agreed to change only on a rules-based solution - which, again, you won't find - you don't have any leverage on your own. You need the other players backing you if you want to see any change. So talk to them. Spell out what you think the problem is, and ask them for their thoughts on it. If they all agree, try to convince them to back you up when you talk to him again. Let him know that, rules or no rules, none of his players think that it's any fun, and none of you want him to do it anymore. Remind him that the point of the game is for everyone to have fun, and that what he's doing is actively getting in the way of that.
If he hears you out and actually enacts a change, then the problem is solved. If not, then this probably won't be the only problem your group runs into. So, be ready to back your words up with action.
Be prepared to act on your words
If you're not willing to put actions behind your words, and he calls your bluff, then you end up with a worse problem than the one you have right now, because now none of your feedback to him will have any weight behind it. This is the other reason I say you need to talk to your party before you talk to him again.
If he's not willing to change this even when the whole party confronts him, then he will probably not listen to any other feedback you guys give him either. If this is the case, then the only way to solve this situation would be to either leave the group or get a different GM. By talking to your party, you can find out whether they'd be willing to (forcibly) change GMs or not. Then, if he doesn't accept the party's feedback, you either change GMs, or you leave the group. And remember that no gaming is still better than bad gaming.
I know this might sound like an extreme solution, but your only other option if he doesn't act on the party's feedback is for you to accept that this is how his game will be played, and it doesn't sound like you're fine with that.
What if he gets angry?
To be honest, there is a reasonable chance that this will happen. After all, just about anyone would feel like they're being ganged up on if their whole party is coming to them to tell them what they're doing wrong. You'll probably want to be careful how you approach this. For example, instead of saying "Hey, you need to stop doing this or we're leaving", you need to say something like, "Hey, I've talked with the party and none of us are enjoying this part of the game. It's not the game that we want to play, and we're not going to play it that way anymore. It's nothing against you, we just don't like that style of game. You can adjust your playstyle to fit that, or we can appoint a new GM instead." This should make your intent clear without accusing him, and it doesn't leave room to argue the point.
Even so, no matter how carefully you choose your words, there is always a chance of something like this ending in a fight. If it comes to that, DO NOT fight back! Unless it turns into a physical fight, in which case, yeah, physically defend yourself. But do not let it turn into a shouting match. If he gets loud or angry, keep your cool. This is the part where you really don't need to lose your temper. Don't retort if he taunts you. Don't defend yourself if he makes accusations. Stick to the facts, and add nothing else. It won't necessarily help in the moment, but it is crucial if you want to patch things up later.
And of course, stick to your guns. If you're set on changing the game's playstyle, don't let his emotions sway your decision. In my experience, it has always been easier to patch things up after a fight than to remain friends with someone who can step all over you. A fight might hurt, but resentment is a poison that affects both sides for far longer. I don't know if that's where you are, but if it is, then I think it's much better to get it out now than to let it build.
Maybe it's not that big a deal
It's possible though that this problem you've described isn't actually that big a deal to you or the other players, in which case it's not worth a fight. But then if that were the case, you probably wouldn't be asking about it here.