Colin Myler, the newspaper's former editor, and Tom Crone, its legal manager, issued an extraordinary public statement disputing crucial evidence given by Mr Murdoch on Tuesday.
Mr Murdoch told MPs that when he authorised a payment of over £700,000 to a victim of phone hacking in 2008 he was "not aware" of an email about hacking which appeared to implicate the paper's chief reporter, Neville Thurlbeck, suggesting illegal behaviour went beyond one "rogue reporter".
But in a statement released last night Mr Myler and Mr Crone disputed Mr Murdoch's version of events and said that they personally had drawn it to his attention.
"We would like to point out that James Murdoch's recollection of what he was told when agreeing to settle the Gordon Taylor litigation was mistaken," they said. "In fact, we did inform him of the 'for Neville' email."
News International's parent firm, News Corp, said last night that Mr Murdoch "stands by his testimony".
The contradiction of Mr Murdoch's evidence by two of his most senior advisers, whom he chose to consult before authorising the payment, led to calls for an urgent explanation from him. Tom Watson, a member of the select committee, said: "If these allegations are true, you can only reach the conclusion that James Murdoch misled Parliament.
It is a remarkable state of affairs and we require an urgent statement from News Corp as to what they would do to put this right, bearing in mind Rupert Murdoch's assurance that the company has a 'zero-tolerance' approach to wrongdoing."
Throughout his evidence Mr Murdoch insisted that the reason he authorised the payment to Mr Taylor, head of the Professional Footballers' Association, was because of legal advice that it would cost more to fight the case than to settle early outside of court. Phone-hacking campaigners claim that the real reason was to prevent further allegations being aired in court – in particular those implicating Mr Thurlbeck.
Both Mr Crone and Mr Myler are angry at the way they have been treated by News International and fear they are being set up to take responsibility for the corporate failures to deal with the phone-hacking crisis.
James Murdoch, the senior News Corp figure at News International's headquarters in east London from December 2007, and now deputy chief operating officer of News Corp, signed off the Taylor payment in April 2008.
When the existence of the payment was revealed in 2009, News International, under the command of Mr Murdoch, continued to deny that there was any evidence of the involvement of its employees other than Clive Goodman, the royal editor of the News of the World, who had been jailed in 2007 along with the private investigator Glenn Mulcaire, whom the paper employed on contract.
In statements, NI argued then that hacking had been the work of a single rogue reporter: "From our own investigation, but more importantly that of the police, we can state with confidence that, apart from the matters referred to above, there is not and never has been evidence to support allegations that: News of the World journalists have accessed the voicemails of any individual; News of the World or its journalists have instructed private investigators or other third parties to access the voicemails of any individuals; there was systemic corporate illegality by News International to suppress evidence."
Ten current or former News International executives and reporters have been arrested this year on suspicion of involvement in phone hacking or bribing police, including the former chief executive, Rebekah Brooks.
Until early this year, the company's executives stuck to the same "rogue reporter" line, including in evidence to Parliament. Mr Myler previously told MPs: "The sequence of events is very simple, and this is very clear: Mr Crone advised me, as the editor, what the legal advice was and it was to settle. Myself and Mr Crone then went to see James Murdoch and told him where we were with the situation. Mr Crone then continued with our outside lawyers the negotiation with Mr Taylor. Eventually a settlement was agreed. That was it." An MP asked: "So James Murdoch took the ultimate decision?" Mr Myler replied: "James Murdoch was advised of the situation and agreed with our legal advice that we should settle."
After the discovery at the NOTW of the "for Neville" email, no action was taken against Mr Thurlbeck and he continued to work as chief reporter. He was arrested in April by the Operation Weeting team investigating phone hacking and is currently on police bail. He is understood to still be on the News International payroll.
James Murdoch's knowledge of hacking
James Murdoch's testimony to Parliament, 19 July
Tom Watson MP: "When you signed off the [Gordon] Taylor payment, did you see or were you made aware of the full Neville email, the transcript of the hacked voicemail messages?"
James Murdoch: "No, I was not aware of that at the time."
Statement by Colin Myler and Tom Crone, 21 July
"Just by way of clarification relating to Tuesday's CMS Select Committee hearing, we would like to point out that James Murdoch's recollection of what he was told when agreeing to settle the Gordon Taylor litigation was mistaken.
In fact, we did inform him of the 'for Neville' email which had been produced to us by Gordon Taylor's lawyers."
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