Rupert Murdoch's Media Empire Is in Crisis -- Phone Hacking Scandal Expands to Families of Dead War Vets

 Rupert Murdoch's planned takeover of Britain's biggest commercial broadcaster was cast into doubt last night as his newspaper empire faced fresh allegations that it hacked the families of dead British servicemen and a dozen blue-chip companies withdrew advertising from its best-selling paper.

In another damaging day for Mr Murdoch in the deepening phone-hacking scandal, the communications regulator Ofcom revealed that it was "closely monitoring" allegations of widespread criminality at News International and said it had a duty to be satisfied that Mr Murdoch and his top executives were "fit and proper persons" to control BSkyB.

Amid continuing claims that the News of the World had accessed the voicemails of child murder victims, Mr Murdoch's embattled top-selling British title last night faced grave new claims that relatives of soldiers killed in Iraq and Afghanistan may have been victims of voicemail eavesdropping.

 A firm of solicitors representing the families of men killed in several high-profile cases in Iraq said they were contacted by Scotland Yard yesterday to say evidence had been found that they may have been targeted by the NOTW's private investigator, Glenn Mulcaire.

In a statement, MPH Solicitors said: "We have been contacted this morning in connection with a possible phone-hacking on our clients... arising out of high profile military inquests in 2006/2007."

In a sign of the rapidly-developing nature of the crisis engulfing News International, the Ministry of Defence said last night it was seeking clarification from the Yard of the names of those whose details were found on Mulcaire's records.

Among the families that could be affected are those of Sergeant Steven Roberts, whose lack of body armour contributed to his death, Lance Corporal Matty Hull who was killed by friendly fire, and the personel who died in the crash of a US Sea Knight aircraft in Kuwait.

Geraldine McCool, the MPH solicitor who represented who represented the relatives of both men, and whose phone may also have been accessed, said she was not aware of any articles which had given rise to suspicion of hacking but called for the full extent the alleged "diabolical practice" to be made clear.

News International reacted to the fresh allegations last night by saying its support for the armed services was "impeccable" and it would be "absolutely appalled and horrified" if the claims were true.

The Yard declined to comment on its ongoing investigation but in a day of rapidly-changing developments, it became clear its inquiry into the phone hacking scandal has rapidly accelerated. It is expected that as many as five NOTW journalists and executives, on top of the three previously detained, are expected to be arrested in the coming days.

In an emergency debate in the House of Commons, the former Labour minister Tom Watson accused James Murdoch, the chairman's son and heir, of perverting the course of justice by engaging in a cover-up and called for him to be suspended from the News Corp board.

Hours after the Labour MP Chris Bryant accused the News of the World of hacking phones linked to the murdered Essex schoolgirl Danielle Jones, the 80-year-old proprietor gave his personal backing to the paper's former editor and News International's current chief executive, Rebekah Brooks.

In a statement, Mr Murdoch called claims of hacking and payments to police officers "deplorable and unacceptable". He said the company "must fully and proactively co-operate with the police in all investigations and that is exactly what News International has been doing and will continue to do under Rebekah Brooks' leadership".

As fallout from the dispute over the NOTW's hacking of the phone of the murdered schoolgirl Milly Dowler crossed the Atlantic, Mr Murdoch's News Corp shares tanked in New York, falling by nearly 5 per cent at one stage, wiping £180m from the tycoon's stake. By close of trading, he had lost £120m in the day.