The Battle of Wapping, Mk II

David Cameron was given a personal guarantee by Rupert Murdoch that Andy Coulson was safe to take on as his Downing Street press chief, The Independent on Sunday learnt yesterday, as the fallout from the News of the World phone-hacking scandal threatened to escalate into all-out war between the UK's two most powerful men.

The Prime Minister had already cooled relations with the 80-year-old press baron on Friday by saying that his son, James Murdoch, has "questions to answer" over News International's handling of the scandal. The Battle of Wapping 2011 will be intensified by the revelation that Mr Cameron was told by Mr Murdoch twice that, despite fears over Mr Coulson's connection to the phone-hacking scandal, there was no problem with the former editor.

After this, Mr Cameron promised he would defend Mr Coulson's position. The IoS can reveal that the cosy relationship between the Prime Minister, Mr Murdoch Snr, News International's chief executive Rebekah Brooks and Mr Coulson has been severely damaged by the hacking crisis, which caused the closure of the 168-year-old tabloid newspaper this weekend. Mr Cameron faces serious questions over his judgement in appointing Mr Coulson, who was arrested on Friday by police investigating hacking and illegal payments to police officers. The Prime Minister said that he had sought assurances over the appointment in July 2007. Mr Murdoch Snr later gave Mr Coulson a clean bill of health, himself believing he was giving an accurate portrayal of his former editor. Rupert Murdoch flies to London today to take personal control of the crisis, amid fears that the toxicity caused by the News of the World's role in hacking could affect his treasured US title, The Wall Street Journal.

In fresh developments yesterday, Mr Coulson made clear he was standing by his story and would not be made a scapegoat in the crisis. Mrs Brooks also stood her ground by telling a committee of MPs that she had "no knowledge whatsoever of phone-hacking" during her tenure as editor of the News of the World.

Mr Coulson is understood to be "steaming" with rage that he has been left swinging by News International, specifically by Ms Brooks. When he discovered early last week that emails over police payments had been handed to detectives, he tried to call her – but she failed to respond promptly. While it is not known if she called back later, the failure to pick up the phone straight away to her long-standing friend has caused a potentially explosive rift between two of the power-players at the heart of the crisis.

Mrs Brooks continues to enjoy the support of Rupert Murdoch. Asked yesterday, before he left for London, whether she had his backing, Mr Murdoch replied: "Total." He added: "I'm not throwing innocent people under the bus... we've been let down by people that we trusted, with the result the paper let down its readers."

Meanwhile Mr Murdoch's hopes of taking over BSkyB are hanging in the balance. An opinion poll released yesterday showed that two-thirds of people do not believe Mr Murdoch Snr and other News Corporation executives are "fit and proper" to own British media.

The YouGov survey on behalf of the campaign group Avaaz, which has campaigned against the takeover, also suggests 73 per cent of people think the media baron has too much influence over British politics. Half of people surveyed think Mr Cameron is "too close" to Mr Murdoch. The scale of the public fightback – triggered by revelations that the News of the World hacked into the mobile phone of the murdered teenager Milly Dowler – forced Jeremy Hunt, the Culture Secretary, to announce that a decision will not be made on the sale until the autumn at the earliest. On Wednesday Labour will attempt to bury the planned takeover once and for all by forcing a vote in Parliament, which its leader, Ed Miliband, hopes will be backed by Conservative and Liberal Democrat MPs. While it would not be legally binding, a vote against the takeover would undermine the legitimacy of the Government's decision if it were subsequently to authorise the BSkyB takeover.

There is speculation in the Murdoch empire that senior executives could face criminal charges in the US and the UK. Legal experts say that Les Hinton, the publisher of the WSJ, and James Murdoch could potentially face charges under the US Foreign Corrupt Practices Act (FCPA) or the UK's Regulation of Investigative Practices Act (RIPA). The US law means executives can be held to account for bribes paid by overseas subsidiaries, while the RIPA makes company officials liable regardless of their direct role in unlawful practices. "Under RIPA, ignorance of what was going on is not a defence," said a legal source.

Yesterday Mr Coulson, who was questioned for nine hours at a London police station on Friday by detectives who seized his computer and documents, emerged from his home to pay tribute to his former colleagues at the News of the World, who were putting together the final edition of the newspaper for publication today. Clearly emotional, Mr Coulson said: "I think this is a very sad day for the News of the World. More importantly for the staff who, in my mind, are brilliant, professional people and I really feel for them." A letter from Mr Coulson's lawyers to the Commons Home Affairs Select Committee, which is investigating the scandal, reveals that the former Downing Street spin chief is sticking to evidence he gave to Parliament in 2009, when he said he did not "condone or use" phone-hacking when he was editor. The letter refers MPs to his previous evidence to the Culture, Media and Sport Select Committee.

The Home Affairs committee wrote to Mr Coulson last week to ask whether he knew that Milly Dowler's phone had been hacked, because he was deputy editor at the time, in 2002. The committee also asked Mr Coulson whether he knew about illegal payments to police officers, after News International passed emails to police last week that allegedly showed he had authorised the payments. The letter from Mr Coulson's lawyers, DLA Piper, disclosed yesterday, said: "You will find the answers to some of your questions in Mr Coulson's previous evidence as he has already been questioned in Parliament by the Culture, Media and Sport Select Committee."

Ms Brooks wrote to the Home Affairs committee, and her letter was also published yesterday. She said: "I want to be absolutely clear that as editor of the News of the World I had no knowledge... of phone-hacking in the case of Milly Dowler and her family, or in any other cases during my tenure. I also want to reassure you that the practice of phone-hacking is not continuing at the News of the World... I should add that we have no reason to believe that any phone-hacking occurred at any other of our titles."

The IoS also understands that Mr Cameron entertained doubts in 2009 about whether he should take Mr Coulson into No 10 as his communications director. There are also suspicions that Mr Cameron may himself have been a victim of phone hacking before he became PM – which would help to explain why his approach to News International has hardened.

Mr Murdoch's decision to secretly move the entire News International operation to a new site and rid it of the print unions in 1986 led to the original Battle of Wapping.