A former senior aide to British Prime Minister David Cameron faced arrest on Friday over his alleged role in a phone-hacking scandal that prompted Rupert Murdoch to close Britain's biggest selling Sunday newspaper.

In a startling response to the scandal engulfing Murdoch's media empire, the British newspaper arm of News Corp announced it would publish the 168-year-old News of the World for the last time this weekend.

As allegations multiplied that its journalists hacked the voicemail of thousands of people, from child murder victims to the families of Britain's war dead, the tabloid hemorrhaged advertising, alienated millions of readers and posed a growing threat to Murdoch's hopes of buying broadcaster BSkyB.

The scandal has also become an embarrassment for Cameron.

The prime minister chose former News of the World editor Andy Coulson as his communications director, even though one of Coulson's reporters and a private investigator had been convicted of hacking into the phones of royal aides. Coulson insisted he knew nothing about it, but as new allegations surfaced, Coulson resigned from Cameron's team in January.

The Guardian newspaper reported that Coulson would be arrested on Friday over suspicions that he knew about or had direct involvement in phone hacking during his editorship of the News of the World from 2003-2007.

The announcement on Thursday that the News of the World was to close was one of the most dramatic in the 80-year-old Murdoch's controversial career, and is widely seen as an effort to prevent the crisis spreading beyond the tabloid to more lucrative parts of his empire.

Murdoch's son James, who chairs the British newspaper arm of News Corp, said the News of the World, which his father bought in 1969, had been sullied by behavior that was wrong.

Indeed, if recent allegations are true, it was inhuman and has no place in our company, he said in a statement.

The announcement that the paper's final issue will be on Sunday may even be a signal that the famously excessive practices of British tabloid journalism will be less prevalent in future.

The news came as a shock to the 200 staff at the paper, which from its earliest days in the Victorian era sought to titillate the British working class with sensational journalism about sex and crime.

No one had any inkling at all that this was going to happen, said Jules Stenson, its features editor.

Growing popular and political anger over the phone hacking saga had spurred concerns that there could be snags in securing government approval for News Corp's $14-billion bid for BSkyB, of which it already owns 39 percent.

Cameron's government has given an informal blessing to the takeover, despite criticism on the left that it gave Murdoch too much media power.

News Corp's U.S. shares fell more than 5 percent on Wednesday, and edged 0.23 percent lower on Thursday in a rising overall market.

I don't see how this deal can go ahead. It's politically totally unacceptable now, said Alex Degroote, media analyst at Panmure Gordon.

Others said any attempt to block the BSkyB deal at this late stage would likely spark a legal challenge from News Corp, one the company would likely win.

It is not yet clear if the scandal will damage James Murdoch, the presumed successor to his father, and other News Corp executives.


Speculation is rife that the company will turn The Sun, its best-selling tabloid daily, into a seven-day operation to tap the Sunday market. Despite difficult times for newspapers, the News of the World sold 2.6 million copies a week.

Journalists said an emotional News of the World editor Colin Myler had read out the announcement at the east London newsroom where Murdoch changed the face of British journalism in the 1980s by breaking the power of the printing unions.

But news that Rebekah Brooks would remain in place as News International's chief executive brought fury from staff. James Murdoch told Sky News he was satisfied Brooks knew nothing of the crimes allegedly committed when she was News of the World editor.

Asked how staff felt toward Brooks, one reporter said there was a sense of seething anger and pure hatred directed toward her: We think they're closing down a whole newspaper just to protect one woman's job.

British opposition leader Ed Miliband said Brooks -- whose friendship with Cameron is also under the spotlight -- should go, echoing the view of the journalists' trade union.

Investigations into phone hacking at the tabloid have been bubbling for several years. Until recently only celebrities and other public figures were believed to have been victims.

But the scandal exploded earlier this week after revelations that an investigator working for the paper may have listened to -- and deleted -- the voicemail messages of a missing 13-year-old schoolgirl, later found murdered.

The scandal deepened on Thursday with claims News of the World hacked the phones of relatives of British soldiers killed in Iraq and Afghanistan. Several major brands pulled advertising from the title.

Police have also been criticized over allegations officers took money from the News of the World for information.

(Additional reporting by Jodie Ginsberg and Tiffany Wu; Writing by Janet Lawrence; Editing by Daniel Magnowski)