Rupert Murdoch and the British government tried to draw the financial and political sting from a newspaper phone-hacking scandal by referring his $14-billion media takeover to regulators, even as police said former prime minister Gordon Brown appeared to have been a hacking target.

By referring News Corp's bid for the highly profitable pay-tv operator BSkyB to a lengthy competition probe, the government hoped to shield it from a tide of outrage over allegations that News of the World reporters accessed the voicemails of murder and bomb victims, among others.

But reports continue to emerge that illegal methods extended beyond the paper to other Murdoch publications, and the circle of victims continues to grow.

Police confirmed to Brown, who was finance minister and prime minister between 1997 and 2010, that his name had been on a list of targets compiled by Glen Mulcaire, the private investigator at the center of the allegations against the News of the World.

Media reports suggested reporters from across News International, News Corp's newspaper stable, had tried to access Brown's voicemail, obtain information from his bank account and access his family's medical records.

The family has been shocked by the level of criminality and the unethical means by which personal details have been obtained, Brown's spokeswoman said in a statement.

Murdoch's Sun newspaper revealed in 2006 that Brown's son Fraser has cystic fibrosis.

Murdoch, who had already taken a shock decision last week to shut the News of the World, Britain's biggest-selling Sunday paper, had tried to seize the initiative again by withdrawing News Corp's offer to spin off BSkyB's Sky News channel.

Nevertheless, News Corp shares were down more than 7 percent in New York after a similar drop last week, and shares in BSkyB dropped more than 4 percent.

The withdrawal of the offer, made to get the deal approved, opened the way for the government to refer the matter to the Competition Commission, whose investigation is likely to take a year or more.

It's a smart tactical move, said Ian Whittaker, media analyst at Liberum Capital, noting that it also freed the government from a politically unacceptable but apparently unavoidable decision to approve the deal in the current climate.

It gets the government off the hook. But there's still a very strong chance that in the end it will not go through in the short term or medium term. There are enough players out there that are opposed, he told Reuters.

CAMERON UNDER FIRE

Conservative Prime Minister David Cameron has come under fire for his closeness to Murdoch's media empire; he is a friend of Rebekah Brooks, the News International chief executive who was editor at the News of the World during much of the alleged hacking; and he chose another former News of the World editor, Andy Coulson, as his communications chief.

Coulson, who quit in January over the scandal, was arrested last week for questioning in connection with phone-hacking, and allegations that his reporters illegally paid police for information.

Cameron has defended his choice of Coulson and noted that Brown's Labour party also courted Murdoch when it was in power.

But on Monday he fired a warning shot at Murdoch, saying that News Corp needed to focus on clearing up this mess before thinking about the next corporate move.

The referral of the bid may ease the political pressure on Cameron as it meets a main demand of the opposition Labour Party, which had been threatening to drive a wedge into the coalition by forcing a vote in parliament on Wednesday.

Labour leader Ed Miliband said the government had moved reluctantly. They are doing it not because they want to, but because they have been forced to, he said, urging Murdoch to drop the bid for BSkyB.

Cameron's deputy Nick Clegg, from his Liberal Democrat coalition partners, also urged Murdoch to reconsider the bid for the 61 percent of BSkyB that it does not already own.

Other allegations emerged on Monday that News of the World had bought contact details for the British royal family from a policeman and tried to buy private phone records of victims of the September 11, 2001, attacks in the United States. Police declined comment.

Do the decent thing, and reconsider, think again about your bid for BSkyB, Clegg told BBC News, addressing Murdoch, after meeting relatives of one of the victims of phone-hacking, a murdered schoolgirl.

PRESSURE ON MURDOCH

Piling the pressure on Murdoch, who flew to London on Sunday to limit damage to his media empire, U.S. News Corp shareholders suing over the purchase of a business run by Murdoch's daughter filed a revised complaint, saying the British phone hacking scandal reflected how the company's board fails to do its job.

Murdoch's News Corp wields influence from Hollywood to Hong Kong and includes the U.S. cable network Fox and the Wall Street Journal as well as the Sun, Britain's biggest selling paper.

Eight people, almost all journalists, have been arrested so far in a police inquiry into the allegations, which include one that a company executive may have destroyed evidence. News Corp's British newspaper arm denies any obstruction of justice.

You wouldn't be human if you weren't totally appalled by the revelations that have come to light, they're just stomach- churning and I think everyone feels totally shaken, Culture Secretary Jeremy Hunt said in a television interview.

The Guardian and Independent newspapers said News International journalists had repeatedly tried to hack into Brown's voicemail.

The Guardian also said a bank had unearthed evidence suggesting a blagger acting for the Sunday Times, another Murdoch paper, on six occasions posed as Brown and gained details from his account.

News International noted the allegations and requested more information on them.

The BBC said News International had bought phone details for the royal family from a security officer, citing company emails. The implication, therefore, is that the security of the head of state was in some sense being threatened, said BBC business editor Robert Peston.

The Daily Mirror newspaper reported, citing an unidentified source, that News of the World journalists had offered to pay a New York police officer to retrieve the private phone records of victims of the September 11 attacks.

A referral to the Competition Commission means the deal could be blocked on grounds of media plurality. But that would be better for Murdoch than if he and his team were found to be not fit and proper to run the broadcaster by the broadcasting regulator OfCom, as that could see him lose his existing 39 percent of the company.

(Additional reporting by Paul Sandle, Keith Weir, Tim Castle, Sudip Kar-Gupta, Sinead Cruise, Chris Vellacott and Michael Holden; writing by Philippa Fletcher and Kevin Liffey; editing by Ralph Boulton)

(This story is corrected to make clear News Corp share fell 7 percent last week, not Friday)

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