Britain's top police chief resigned and the former head of Rupert Murdoch's UK newspaper business was arrested Sunday over a phone-hacking scandal that has rocked pillars of the establishment.

Paul Stephenson, London's police commissioner, quit in the face of allegations that police officers had accepted money from Murdoch's News of the World paper and not done enough to investigate phone-hacking charges.

Stephenson said he did not want questions about his leadership to undermine the enormous challenge confronting the police in providing security for the Olympic Games in London next year.

I had no knowledge of the extent of this disgraceful practice (of phone-hacking) and the repugnant nature of the selection of victims that is now emerging, Stephenson said in a televised statement.

Stephenson's resignation and the arrest of Rebekah Brooks, one of Murdoch's top lieutenants, were the latest twists in a scandal that has tainted police and politicians and shaken the tycoon's global media empire.

Several sources familiar with the situation said Brooks, 43, was being questioned as part of an investigation into allegations of illegal voicemail interception and police bribery at the News of the World tabloid she once edited.

Brooks quit as chief executive of News International, the British unit of Murdoch's News Corp, Friday, but has denied she knew of the alleged hacking of thousands of phones, including that of a murdered schoolgirl.

The scandal has shocked the public and raised concerns not only about unethical media practices but about the influence Murdoch has wielded over British leaders and allegations of cozy relationships between some of his journalists and police.

With politicians from Australia to the United States demanding to know if similar abuses occurred elsewhere in Murdoch's global media business, the 80-year-old has been forced on the defensive and the position of his son James as heir-apparent has been called into question.

British Prime Minister David Cameron has come under fire for his friendship with Brooks and for employing former News of the World editor Andy Coulson as his press secretary after Coulson quit the paper in 2007 following the jailing of a reporter for phone-hacking.

The waters are very definitely lapping around the Murdochs' own ankles, Chris Bryant, a member of parliament for Britain's opposition Labor Party who has campaigned for years against press malpractice, told Reuters.

Tim Bale, politics professor at the University of Sussex, told Reuters: I think this was pretty uncomfortable for Cameron already and it will get more uncomfortable now over the next week.

It brings the whole thing closer to him. If one believes all the talk of a Chipping Norton set, it reinforces this impression of a cozy elite at the top of the media/political complex, said Bale, referring to a town in Cameron's affluent countryside constituency where Brooks also has a home.

Brooks and Rupert and James Murdoch are due to be questioned in Britain's parliament Tuesday, including over reports that News International misled legislators during earlier hearings.

But Brooks' spokesman said her arrest might cast doubt on whether she could appear before politicians.

I think there will clearly be some discussions between her lawyers and the select committee on whether it is still sensible for her to appear, David Wilson told Reuters, adding she was shocked by the arrest.

Anything that will be said at the select committee hearing could have implications for the police inquiry.

TOUGHNESS AND CHARM

The flame-haired Brooks became the focus of widespread anger over the phone-hacking scandal but was initially protected by Murdoch, who guided her rise through the male-dominated world of UK tabloid journalism to become editor of the News of the World in 2000 and the Sun's first female editor in 2003.

Flying into London a week ago to take charge of the crisis, Murdoch appeared before journalists with his arm around her. Asked what was his first priority, he gestured at her and replied: This one.

Known for her networking skills, Brooks rose quickly through the ranks of tabloid journalists, combining a tough demeanor that could intimidate hardened hacks with an ability to charm largely male editors.

But her initial refusal to quit, and a faltering speech she delivered when she closed the News of the World and ended the careers of dozens of colleagues, prompted some journalists to say she was out of touch.

The News of the World, which published its final edition a week ago, is alleged to have hacked up to 4,000 phones including that of murdered 13-year-old Milly Dowler, sparking a furor that forced Murdoch to close the paper and drop a $12 billion plan to buy all of highly profitable broadcaster BSkyB.

Murdoch, who some media commentators say at first misjudged the strength of public anger, published apologies in several British newspapers at the weekend.

He lost another loyal executive Friday when Les Hinton, another former head of his UK newspaper business, resigned as chief executive of Murdoch's Dow Jones & Co which publishes The Wall Street Journal.

There are no excuses and should be no place to hide ... We will continue to cooperate fully and actively with the Metropolitan Police Service, News International said in an announcement Sunday.

Leading British politicians renewed calls for greater media plurality and press regulation -- a direct threat to Murdoch's empire, which includes The Sun, The Times and Sunday Times broadsheets, and 39 percent of BSkyB.

The Sunday Telegraph reported that members of the board of BSkyB, where James Murdoch serves as chairman, were due to meet in a special session on July 28 to discuss his future.

If James were to be felled by the scandal, British media speculated that his sister Elisabeth could secure the eventual succession to their father.

The scandal has also embroiled Britain's police, who are accused of being too close to News Corp, of accepting cash from the now defunct News of the World and other newspapers, and of not doing enough to investigate the phone-hacking allegations that surfaced as far as back as 2005.

In 2003 Brooks admitted that the News of the World had made payments to police in the past but could not remember any specific examples.

(Additional reporting by Keith Weir and Georgina Prodhan, Writing by Ralph Gowling; Editing by Jon Boyle)

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