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"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 said.

"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."

Mr Cameron has in the past sidestepped questions about exactly how much he knew of Mr Coulson's part in illegal phone tapping, although it is unlikely that he would have appointed Mr Coulson without questioning him very closely about his past.

Mr Prescott, one of the alleged victims of the phone-tapping, today described Mr Cameron's relaxed attitude to Mr Coulson's past as "staggering" and said that he had written to Mr Cameron demanding that he fire his PR chief.

Mr Prescott also said that he would be demanding answers from the Metropolitan Police about why he had not been told about the tapping.

"I find it staggering that there could be a list known to police of people who had their phone tapped," Mr Prescott said. "I'm named as one of them. For such a criminal act not to be reported to me, and for action not to be taken against the people who had done it, reflects very badly on the police, and I want to know their answer."

Commissioner Sir Paul Stephenson responded swiftly, promising to make a statement this evening about the police's handling of the inquiry.

"Clearly I am aware of this story and I think as everybody knows this relates to an investigation that the [Metropolitan Police Service] undertook back in 2006. That investigation was undertaken by the Specialist Operations Directorate as it related very much to a matter of complaint from the Royal Household," he said.

"As a result of that I have asked Assistant Commissioner John Yates to establish the facts of that case and look into that detail and I would anticipate making a statement later today perhaps."

The cross-party Culture, Media and Sport Select Committee announced that it was reopening the inquiry that it held after the sentencing of Mr Goodman and the private investigator Glenn Mulcaire, who had admitted hacking into the phones of five other targets, including Mr Taylor.

The committee’s chairman, Tory MP John Whittingdale, said that it would be asking Mr Hinton whether he wished to amend his previous assertion that no other journalists knew of Mr Goodman’s activities.

He said that the committee may also call Mr Coulson to give evidence, among several present and former News International executives.

Today's revelations appear to have surfaced as a result of legal action by Mr Taylor, who sued News Group Newspapers last year on the grounds that they must have known about the hacking.

The court ordered the production of documents from Scotland Yard's inquiry, and also from a wider inquiry by the Information Commissioner into tactics used by journalists. The Information Commissioner said that it had material suggesting that 31 journalists for the News of the World and The Sun had obtained private data through blagging.

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