Murdoch's UK paper arm admits computer hacking, fuelling criticism of Sky takeover

LONDON (Reuters) - Rupert Murdoch's British newspaper group said on Friday one of its titles had hacked the computer of a former intelligence officer, an admission which critics said showed why his takeover of European broadcaster Sky should be blocked.

In a hearing at London's High Court, Murdoch's News Group Newspapers admitted "vicarious liability" for the hacking of computers belonging to Ian Hurst, who worked for British military intelligence.

The case comes a month after Britain's media minister said regulators should scrutinise Murdoch's planned $15 billion takeover of Sky over concerns about broadcasting standards and its impact on media plurality.

Hurst's lawyer Jeremy Reed said in a court statement the Irish edition of the News of the World newspaper had hired a private investigator to intercept his client's emails in 2006.

Hurst had served in Northern Ireland and later wrote a book about his experiences, including details of Britain's top spy in the Irish Republican Army (IRA), Alfredo Scappaticci, known by the codename "Stakeknife".

Reed said it was likely he was targeted because an employee of the newspaper wanted to trace Scappaticci.

"I confirm that News Group Newspapers ... accepts vicarious liability for the wrongful acts of computer interception," said Anthony Hudson, the lawyer for the newspaper group, adding it had paid "substantial" damages to Hurst and his family.

"News Group Newspapers accepts that such activity happened, accepts that it should never have happened, and has undertaken to the court that it will never happen again."

Opponents of Murdoch's takeover said the case was evidence the deal should not be allowed to go through and they would send a dossier to the Competition & Markets Authority (CMA) which is examining the proposed deal.

"It's vital that the CMA is able to take this new evidence of criminality and corporate failure into account as it assesses the Murdochs' bid to take over Sky," said Tom Watson, deputy leader of Britain's opposition Labour Party.

Murdoch shut the News of the World in 2011 after its journalists were found to have been involved in widespread phone-hacking.

His original attempt to buy full control of Sky was ditched in the wake of the scandal. Since then the company has been split in two, separating the newspapers from entertainment assets to help to smooth the deal's passage.

Last month Murdoch's son James said he was confident regulators would assess the deal on its merits and not be swayed by those with grievances against his father's newspapers, saying the company had dealt effectively with past problems.

(Reporting by Michael Holden; editing by Andrew Roche)