Murdoch's BSkyB bid looks doomed as evidence of cover-up emerges

(EPA)

Rupert Murdoch's takeover of BSkyB appeared to be dead in the water last night after proof emerged that executives at his British newspaper empire mounted a cover-up of the full scale of alleged criminal wrongdoing at the News of the World.

In another extraordinary day in the phone-hacking scandal, Downing Street sources confirmed that Government lawyers were drawing up a strategy to halt the £9bn deal which looked a certainty only a week ago.

A senior Government source said last night: "We are working on a plan to suspend the deal while the police investigation is taking place. But we have to ensure it doesn't get thrown out by judicial review."

The U-turn came after one of News International's own papers revealed that an internal report carried out in 2007, after the News of the World's royal editor Clive Goodman (pictured) was jailed, had found evidence that illegally accessing voicemails was more widespread at the paper – and that payments had been made to police officers.

An anonymous executive was quoted as saying that the report had been like a "ticking time bomb". The report suggests there was a deliberate cover-up by unidentified executives at News International, which had told Parliamentary inquiries in 2007 and 2009 there was no evidence journalists other than Goodman had been involved in phone hacking, nor that it had attempted to suppress evidence of illegality.

The collapse of the cover-up came as Rupert Murdoch flew into London and was seen entering News International's HQ carrying a copy of the final News of the World. Today the parents of the murdered schoolgirl Milly Dowler, whose phone was targeted by the newspaper, prepared to travel to No 10 to demand action over the growing scandal.

The Government's U-turn over its backing for the BSkyB deal is a humiliation for the Prime Minister, who last week said he was powerless to stop it.

Liberal Democrat officials revealed Nick Clegg would back a Labour Parliamentary motion calling for the takeover to be suspended, unless Culture Secretary Jeremy Hunt acted before a Commons debate on Wednesday. Ministers are thought to have been hoping Ofcom would block the deal, but with that looking unlikely before the end of the criminal investigation, they are taking action themselves.

In an interview with i's sister paper The Independent, Nick Clegg attacked politicians for getting too close to Murdoch and other media owners. "You have got too many vested interests tied up with each other."