There were signs of panic in Downing Street last night as the Prime Minister faced mounting pressure from all political parties to block the plans by Rupert Murdoch's News Corporation to take full ownership of BSkyB because of the phone hacking scandal engulfing his UK newspaper group.
One insider said: "We are looking for a way out on the takeover. But it isn't easy to find one. The timing is just awful." A Tory minister said: "David Cameron is well aware of how damaging the issue of the takeover is to him and to the Government. There is real anxiety in No 10."
Some MPs believe there could be discreet contacts between Downing Street and senior News Corp figures urging the company to suspend its bid.
Senior Liberal Democrats pressed the Prime Minister and the Culture Secretary, Jeremy Hunt, to limit the damage to the Coalition by derailing News Corp's bid to buy the 61 per cent of BSkyB it does not already own.
Government officials insist Mr Hunt can only block the deal on media plurality grounds. Some ministers hope that media regulator Ofcom will spare their blushes by halting the takeover because the hacking scandal shows News Corp would not be a "fit and proper" owner of BSkyB. Mr Hunt has already decided not to refer the deal to the Competition Commission. His consultation process ends tomorrow and he is due to make his final decision shortly. Allies of Vince Cable, the Liberal Democrat Business Secretary, say he would have referred the takeover to the Commission if he had remained in charge of media regulation. It was transferred to Mr Hunt last December after Mr Cable told undercover reporters he had declared war on Mr Murdoch.
Lord Oakeshott of Seagrove Bay, a close ally of Mr Cable, told The Independent: "The case for referring the BSkyB deal to the Commission is overwhelming, Vince would have done it. Jeremy Hunt is talked about as a future Conservative leader. This is the test to see if he has the backbone to do the right thing in the public interest." He added: "If what happens at News International is 'fit and proper' behaviour, how could anyone ever fail that test?"
He played down Mr Cameron's announcement yesterday that there would be independent inquiries into the newspaper industry's practices and ethics and the original Met investigation which failed to get to the bottom of the hacking scandal. "What is the point of an inquiry if Mr Murdoch is allowed to walk away with the big prize [BSkyB]?"
Nick Clegg urged Mr Cameron to launch an inquiry on Tuesday in an email sent during the Prime Minister's visit to Afghanistan. Mr Cameron had already reached the same conclusion. Mr Clegg wants to ensure the inquiries are not used to delay taking action.
In an emergency three-hour Commons debate, senior figures in all parties called for the takeover to be suspended. Mr Cameron told MPs: "What has taken place is absolutely disgusting." But the Attorney General Dominic Grieve said the inquiry might, in its early stages, have to be held in private: "It may not make much progress until the criminal investigations are over."
Senior Tories admitted this week's revelations had called into question Mr Cameron's decision to appoint Andy Coulson, who had resigned as News of the World editor over hacking, as his director of communications, a post from which he resigned in January.
Ed Miliband accused Mr Cameron of a "catastrophic judgement in bringing Andy Coulson into the heart of his Downing street machine."
Downing Street sources said the Prime Minister had received "general assurances" from Mr Coulson about his career at the News of the World.