The remarks came after investors slashed about $2 billion, or 5 per cent, from News Corporation's market value, partly in response to the escalating phone-hacking scandal.

The Deputy PM, Nick Clegg, hardened his stance on the $14 billion Murdoch bid for BSkyB after meeting the family of murdered English schoolgirl Milly Dowler, whose telephone was hacked in 2002, even while her family was searching for her.

''Look how people feel about this. Look how the country has reacted to the revelations,'' he told Mr Murdoch via the media. ''Do the decent and sensible thing and reconsider, think again, about your bid for BSkyB.''

Conservative British Prime Minister David Cameron faces a humiliating climb-down over the BSkyB deal, with his junior coalition partners - Mr Clegg's Liberal Democrats - saying they will back a Labor vote that would shelve the deal for years.

The scandal widened yesterday on several fronts:

¦The News of the World was accused of paying a royal protection officer for the contact details of senior members of the royal family, their friends and relations, which could have been used to hack their phones.

¦The family of Milly Dowler said News International chief executive Rebekah Brooks, who was editor at the time of the phone hacking, should do the ''honourable thing'' and resign.

¦Murdoch confidant Les Hinton faced questions over whether he misled Parliament when he told a committee in 2007 that the hacking was the work of a single rogue reporter.

¦A former New York policeman has said News of the World reporters asked him to get the private phone records of people killed in the 9/11 terror attacks.

¦Shares in BSkyB dropped sharply on growing doubts over News's ability to take full control of the lucrative satellite broadcaster.

The BBC reported that evidence of payments to royal protection officers was in News International emails uncovered by an internal probe in 2007. But these were not passed on to police until June this year.

After hearing of the BBC allegations while giving a news conference, Labour leader Ed Miliband declared: ''That's why I say clearly to Mr Murdoch that he should withdraw his bid.''

Mr Miliband is stepping up the pressure on Mr Cameron, who is on the back foot for hiring one of the newspaper's editors, Andy Coulson, as his media director. Mr Coulson resigned in January and was questioned over allegations of phone hacking and corruption at the weekend.

Speculation also intensified that News International chairman James Murdoch could be open to prosecution over corporate corruption. Former Labour home secretary Alan Johnson suggested he could be charged under the Regulation of Investigative Powers Act, which covers the ''criminal liability of directors''.

Also under pressure is Murdoch confidant Les Hinton, who faces questions over whether he saw an internal 2007 News International report that found hacking was more widespread than admitted before he appeared before a 2007 parliamentary committee.

The Guardian claims Mr Hinton, head of News International before James Murdoch took the role, was one of five executives who had access to the report. It has been previously described by anonymous company sources as a ''smoking gun''.

Experts are also warning that US authorities might launch a corruption investigation into the claims that News of the World made more than £100,000 worth of payments to police officers. The US has a Foreign Corrupt Practices Act that forbids involvement in bribery or corruption overseas.

They said the US Department of Justice and the Securities Exchange Commission have previously imposed fines of up to $US800 million.

They told the Telegraph any inquiry would probe News Corporation worldwide to check for bribery, payments wrongly accounted for and the adequacy of the company's anti-corruption measures. Sunday's closure of the paper after 168 years has not stopped the political storm.

Labour said that if Mr Cameron failed to block the BSkyB deal it would table a motion tomorrow calling for the takeover to be shelved until police inquiries were over.

Liberal Democrat peer Lord Oakeshott said: ''Lib Dems from the cabinet to councillors … are totally united. We want to block the BSkyB bid and then break up the Murdoch empire.

''He's far too powerful - we don't let (supermarket chain) Tesco have 40 per cent of the market. This is not just about blocking the bid, it's about ending a serious danger to our democracy.''

Staring it all down with an appearance of good cheer, Rupert Murdoch beamed for television cameras and again backed his controversial News International chief and former News of the World editor Rebekah Brooks, when he appeared with her outside his home in Mayfair.

Asked what his priority was, he smiled, gestured to Mrs Brooks and said: ''This one.''

Mr Murdoch's Australian stable of newspapers includes The Australian and the Herald Sun.