Neil Wallis, who was deputy editor of the tabloid during the original inquiry into its illegal interception of voicemail messages, was paid £24,000 over a year to act as a PR consultant to Britain’s biggest police force.
Last night, News International said it was looking into whether or not it had made any payments to him since he left the company.
While the so-called “Wolfman” was working for Scotland Yard, the force had been under pressure to reinvestigate phone-hacking following revelations that the News of the World’s publishers had paid more than £1million to settle legal cases involving alleged victims.
It was claimed at the weekend that Mr Wallis might have been contacting his old bosses in Wapping. Scotland Yard has said Mr Wallis had no "operational input".
The New York Times claimed: “On Friday, The New York Times learned that the former editor, Neil Wallis, was reporting back to News International while he was working for the police on the hacking case.”
It was another article published by the respected American newspaper last September, linking the News of the World to phone-hacking during Mr Wallis’s spell there, which led to the termination of his contract with the Met.
Mr Wallis, 60, was deputy editor of the News of the World from 2003 to 2007, at the time when its royal editor was jailed over phone-hacking, and rose to become executive editor before leaving to join a PR firm in 2009.
The arrest of such a senior figure is a further blow to the integrity of Rupert Murdoch's empire and is likely to place further pressure to Prime Minister David Cameron, who is a personal friend of the former News of the World editor.
She was said to be "surprised" by the arrest, which came at a pre-arranged meeting with police. It is unclear whether it will mean she is unable to answer MPs questions along with her former employers Rupert and James Murdoch in parliament tomorrow.
In his resignation statement, Sir Paul denied any wrong doing and said his integrity was "completely intact", despite revelations that he had appointed former News of the World deputy editor, Neil Wallis, as an adviser, and had received thousands of pounds worth of hospitality at Champneys health resort while recovering from serious illness. Mr Wallis worked as PR consultant for Champneys.
Mr Wallis was arrested last week for "conspiring to intercept communications".
Sir Paul, 57, said he wanted "to put the record straight" over his relationship with Mr Wallis, saying that he had no reason to believe he had been involved with phone hacking.
He added: "I do not occupy a position in the world of journalism, I had no knowledge of the extent of the disgraceful practice and the repugnant nature of the selection of victims that is now emerging, nor is it apparent reach into senior levels."
Sir Paul also added that he had saw no reason to inform senior ministers of Mr Wallis's employment by the force between 2009 and 2010, during which time he earned £24,000.
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