The day the World died

The former communications director for British Prime Minister David Cameron was arrested late last night, a day after it was announced the newspaper he once edited, the News of the World, would close tomorrow.

Andy Coulson, 43, was taken into custody over allegations of phone hacking and police bribery.

Police also arrested the paper's former royal editor, Clive Goodman, on suspicion of bribing police. He served a jail term in 2007 for hacking into the phones of royal aides.

Media magnate Rupert Murdoch is closing the 168-year-old newspaper in a desperate attempt to limit the ongoing scandal over hacking.

Former Home Secretary Alan Johnson said that Murdoch's son, James, could himself be prosecuted over his admission that he approved out-of-court settlements for victims of hacking.

James Murdoch revealed the decision to close the News International newspaper in an email to staff. In it, the News Corp deputy chief operating officer said: "The News of the World is in the business of holding others to account. But it failed when it came to itself."

Journalists at the newspaper raged that they had been betrayed by Rebekah Brooks, the News International chief executive, who faces calls for her resignation after revelations that the paper under her editorship hacked the phone of the murdered British schoolgirl Milly Dowler.

"Murdoch has sacrificed a newspaper to save one woman," said one.

In other developments:

* Coulson prepared for a police grilling over what he knew about phone-hacking while he was editor.

* James Murdoch denied perverting the course of justice by authorising payments to hacking victims.

* Major advertisers continued their exodus, with Sainsbury's, Asda, O2, Boots, Specsavers, Dixons and Npower joining companies such as Ford in suspending their relationship with the News of the World. The Royal British Legion cut its ties over allegations of hacking of the families of military casualties in Iraq.

Brooks visited the newsroom, where she had a terse exchange with editor Colin Myler, who will bring out the last edition.

The paper, which News International has decided will feature no advertising, will carry a large apology on its front page.

The famous title, which has become a national institution for its mix of salacious gossip and serious investigation - and once generated sales of eight million copies a week - was sacrificed as the News Corp founder sought to stop the negativity that it has attracted over phone hacking, including the arrests of staff and the loss of blue-chip advertisers.

Referring to the phone-hacking scandal, James Murdoch said in his statement: "Wrongdoers turned a good newsroom bad and this was not fully understood or adequately pursued. As a result, the News of the World and News International wrongly maintained that these issues were confined to one reporter.

"We now have voluntarily given evidence to the police that I believe will prove that this was untrue and those who acted wrongly will have to face the consequences."

Brooks and James Murdoch are in charge of News Corp's operations at its headquarters in Wapping, east London, and both have been criticised heavily for their failure to uncover the extent of phone hacking since the scandal re-emerged two years ago.

Rupert Murdoch has a history of closing newspapers in Britain, having shut down Today, the last national title to fold, in 1996. News International confirmed that 200 members of staff would be invited to seek jobs elsewhere in the organisation.

Rumours were soon circulating that News Corp was planning to return to the Sunday tabloid market by launching the Sun as a Sunday newspaper and that Rupert Murdoch had seized a chance to be rid of what had become a damaging brand to make cost savings and improve efficiency.

The name Sun on Sunday has been registered this week along with the domain name thesunonsunday.co.uk, observers noted.

Critics of News International's handling of the phone hacking inquiry, including Lord Prescott and the Labour MP Tom Watson, were quick to dismiss the closure of the News of the World as a rebranding exercise, which would not draw a line under the affair. Watson said: "Rupert Murdoch did not close the News of the World.

"It [was closed by the] revulsion of families up and down the land as to what they got up to. It was going to lose all its readers and it had no advertisers left. They had no choice."

- Agencies