David Cameron was today forced to defend one of his most trusted advisers over allegations of illegal phone hacking, insisting that "yes, of course" his job was safe.

The Conservative leader said that he had been well aware of former News of the World editor Andy Coulson's background when he made him his director of communications in May 2007.

"It is wrong for newspapers to breach people's privacy with no justification. That is why Andy Coulson resigned as editor of the News of the World two and a half years ago," Mr Cameron told journalists on his doorstep as he left home this morning.

"Of course I knew about that resignation before offering him the job. But I believe in giving people a second chance.

"As director of communications for the Conservatives he does an excellent job in a proper, upright way at all times."

The scandal has resurfaced to trouble Mr Coulson and Mr Cameron after The Guardian newspaper reported today that the phone-tapping which led to the News of the World's royal editor, Clive Goodman, being imprisoned for four months, and which prompted Mr Coulson to quit as editor even though he claimed he had been unaware of the illegal activity, went far further than had previously been made public, with the privacy of hundreds of public figures put in jeopardy.

John Prescott, the then Deputy Prime Minister, Tessa Jowell, a Cabinet Minister, Boris Johnson, then a Conservative MP, Gwyneth Paltrow, the actress, and Elle Macpherson, the lingerie tycoon and former supermodel, were all named today as victims of phone-tapping.

Mr Goodman was jailed in January 2007 for hacking into the phones of three royal staff. Glenn Mulcaire, a private investigator, was also jailed for tapping further phones, including those of Max Clifford, the celebrity PR consultant, and Gordon Taylor, chief executive of the Professional Footballers’ Association.

The News of the World is part of News International, which also publishes The Times. Mr Coulson and company spokesmen have said that only Mr Goodman was aware of the tapping.

Today, however, The Guardian claimed that since then the newspaper group had paid £1 million in out-of-court settlements in three cases that involved the use of private investigators to obtain personal data on public figures that went beyond phone-taps, including tax records, bank statements, itemised phone bills and social security files. £700,000 had been paid to Mr Taylor, it said.

The Guardian also accused the Metropolitan Police of being aware of the alleged wider breaches of privacy and failing to act. According to senior sources in the Metropolitan Police quoted in The Guardian, officers found evidence of News of the World staff using private investigators to obtain information from mobile phones. Police sources claimed last night that their investigation had uncovered evidence that many hundreds of mobile phone voicemail inboxes had been tapped into.

This morning John Prescott said that he would be writing to the Met to ask what exactly they had known, and why he had not been alerted that his mobile phone was compromised.

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