Two former senior News Corporation executives have accused James Murdoch of giving "mistaken" testimony to a British parliamentary committee.
The allegations come as an editor at The Sun newspaper was sacked amid the phone-hacking scandal. Four security guards marched up to the desk of the features editor Matt Nixson last night and announced his contract was terminated, secured his computer and told him to leave.
But The Sun's parent company, News International, was quick to dispel the notion there was strife at that paper too and has released a statement saying an internal investigation had found evidence of wrongdoing by Mr Nixson during his time working at the News of the World.
Heir apparent to the News Corporation empire, James Murdoch, faced the UK's parliamentary committee into the phone-hacking scandal on Tuesday.
Now a former editor and a former legal adviser of the shuttered News of the World have challenged his claim that he was unaware of the extent of phone-hacking at the newspaper when he approved a big payout to a victim in 2009.
Former editor Colin Myler and former legal adviser Tom Crone released a statement insisting they had warned James Murdoch that there was evidence of widespread phone hacking at the News of the World before he authorised a key payout to a victim, the English soccer executive Gordon Taylor.
"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," the statement said.
"In fact, we did inform him of the for Neville email which had been produced to us by Gordon Taylor's lawyers."
The storm centres around the so-called "transcript for Neville" email, allegedly sent by a junior reporter to the private investigator Glenn Mulcaire containing transcripts of messages Mulcaire had hacked.
It is thought the "Neville" involved was the defunct paper's former chief reporter Neville Thurlbeck.
If it turns out he knew about the transcripts, that would contradict News International's claims that the hacking was limited to a lone rogue reporter.
'Serious' concerns
When James Murdoch fronted a parliamentary committee on Tuesday night alongside his father Rupert, what he knew of this email was a prime concern for Labour MP Tom Watson."When you signed off the Taylor payment, did you see or were you made aware of the for Neville email, the transcript of the hacked voicemail message?" he asked James Murdoch.
James Murdoch told the committee he "was not aware of that at the time".
Now, James Murdoch has released a statement saying he stands behind his testimony to the select committee.
Nonetheless, committee chairman John Whittingdale told the Reuters newsagency the allegations by the former News of the World staffers are serious.
"If it is the case that Colin Myler and Tom Crone are in conflict on a serious issue, then that is a matter we would want to obtain a response from James Murdoch on," he said.
"James Murdoch has already said he will provide written evidence on other issues and we could ask for this to be clarified this way."
Meanwhile, there is still time for the scandal to engulf other newspapers.
It has been revealed Scotland Yard has asked Britain's Information Commissioner's Office for files from a 2006 inquiry into the use of private investigators by newspapers.
That report found the Daily Mail and the tabloids the People and Daily Mirror made the most requests to private investigators for confidential information.
'Avalanche effect'
Nick Davies is the Guardian newspaper journalist whose reporting has driven the phone hacking scandal and he says it is likely there is more to come."You get a kind of avalanche effect and I mean, I am getting a lot of calls from people who want to say things about what was going on in Scotland Yard and fewer but significant calls from people who want to talk about what was going on inside News International and that includes what was going on at very senior levels," he said.
Mr Davies says he expects more people will be arrested.
"Certainly people will be charged with hacking into voicemail. Probably people will also be charged with corrupting police officers which is a serious offence with big jail time, possibly you may see charges of perjury," he said.
In another blow to the Murdoch empire, British athletes have cancelled a deal that gave his newspapers exclusive access to their preparations for the 2012 Olympics.
They say the closure of the News of the World means the contract could no longer be fulfilled as originally envisaged.
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