A senior News International executive accused Guardian editor Alan Rusbridger today of "sexing up" coverage of the phone-hacking scandal.
Richard Caseby, managing editor of The Sun, said the broadsheet's "false accusation" that a News of the World (NotW) reporter deleted voicemails from Milly Dowler's phone had been directly responsible for the closure of the newspaper.
Giving evidence to the Lords Communications Committee, Mr Caseby said: "I would say it is now clear that Alan Rusbridger has effectively sexed up his investigation into phone hacking and the wider issue of wrongdoing in the media.
"As you are, I am sure, aware, the Metropolitan Police has now confirmed that the NotW was not to blame for deleting the specific mobile phone messages of Milly Dowler that gave false hope to her parents that she was still alive.
"Let me be clear: phone hacking by the NotW was wrong and it is rightfully condemned by all.
"But the Guardian statement of fact, in I think it was 34 articles, that the paper had given the parents false hope is quite another matter.
"Because that accusation turned what was natural condemnation into a wave of such utter public revulsion that the NotW couldn't really function as a going concern any more and it had to be shut down."
Mr Caseby, who was joint managing editor at the News of the World when it was closed down in July, said the Guardian's story about the voicemail deletions was the "twist of the knife".
"The Guardian's false allegation directly resulted in 200 people being thrown out of work," he said.
The comments came as the parents of the murdered schoolgirl indicated they still blame the News of the World for deleting the voicemails.
Their lawyer, David Sherborne, told the Leveson inquiry yesterday that there were doubts over Scotland Yard's suggestion that the messages had been automatically deleted after 72 hours.
He questioned why every single voicemail had been deleted at once on March 24 2002, rather than over a series of days.
A statement issued by the family today said: "The Dowlers stand by the statement which was made on their behalf at the end of last week.
"They have a clear recollection that the police told them that the News of the World had listened to their missing daughter's voicemail and deleted some of the messages.
"They have asked all of the press to leave them alone and, while they remain willing to help Lord Leveson, they do not propose to make any further statement."
Mr Caseby went on: "I can see that Alan Rusbridger is still finding it hard to acknowledge how seriously this repeated error has undermined his paper's authority.
"In fact he tried to justify it yesterday, saying that his paper reported the facts as they were known at the time.
"The trouble is they were never facts. They were only ever allegations."
Mr Caseby said as soon as the NotW was closed Mr Rusbridger had "turned his attention to The Sun" as part of an "agenda against the popular press".
"He tried I believe to capitalise on public revulsion and close another News International title," he added.
Mr Caseby said the Guardian had run an "utterly false" story on its front page alleging that The Sun had hacked into the medical records of Gordon Brown's younger son Fraser, who suffers from cystic fibrosis.
An apology was later made on page 34, he added.
Shortly after the Leveson inquiry hearings began, the broadsheet alleged that The Sun had doorstepped one of the junior counsel.
"It was calculated to inflict the maximum damage to The Sun," Mr Caseby said.
It subsequently ran an apology on page 44, according to the executive.
"Mr Rusbridger has shown a pattern of behaviour that poses a serious question over his motivations," he added.
"He has an agenda against the popular press, a section of the media he clearly holds in contempt."