RUPERT Murdoch's bid for pay-TV giant BSkyB is at risk of being frozen as a phone-hacking scandal at News of the World affects its shares.



The government is facing increased pressure to block a takeover of the British satellite broadcaster amid a report that relatives of dead soldiers may have had their phones hacked by News of the World, Britain's biggest-selling Sunday paper.

News International, the British newspaper arm of News Corp, said it would be "absolutely appalled" if the claims proved to be true.

The main opposition Labour leader Ed Miliband said he was "disgusted" by the allegations, one day after he urged the coalition Conservative-Liberal Democrat government to delay its decision on the BSkyB deal.

Miliband's demand came after a report alleged that journalists hacked the voicemail of murdered teenager Milly Dowler after her disappearance in 2002, and even deleted some messages, potentially disrupting the police investigation.



Prime Minister David Cameron insisted on Wednesday that the row should not affect his government's decision, due within days, on whether News Corp should be able to proceed with its bid for full control of BSkyB.

News Corp last week moved closer to controlling BSkyB after the government noted that plans by the suitor to turn Sky News into a new company allayed fears that Murdoch would gain too much power in the country's media sector.

Despite the government backing, Culture and Media Minister Jeremy Hunt nevertheless also took the decision last week to extend consultations until this Friday to strengthen state proposals aimed at tackling competition fears.

British media watchdog Ofcom, which is advising Hunt over the takeover, said on Wednesday that it was "closely monitoring" the allegations, adding that it had a duty to probe whether broadcasters were "fit and proper".

Should Hunt decide to wave through the deal, BSkyB still needs to agree on a price.

The broadcaster, which has a portfolio including live English Premier League football and blockbuster movies, is holding out for more than the 7.8 billion pounds ($A11.71 billion) offered by News Corp last year.

News Corp, which has bid to buy the 61 per cent of BSkyB it does not already own, may now have no choice but to put its bid on hold, according to one analyst on Thursday.

"The fallout from the News of the World phone hacking scandal has raised fears about the likelihood that News Corp will be reluctant to finalise its prospective takeover of BSkyB, sending the shares lower," said Michael Hewson at trading group CMC Markets.

News Corp shares slumped 3.61 per cent to $Aust16.55 in Sydney on Thursday, while in early London deals, BSkyB fell 1.57 per cent to 814 pence.

In a further blow to News Corp, major companies, including US car giant Ford, have pulled their advertising from News of the World.

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