By Michael Holden

LONDON (Reuters) - Senior London police staff linked to the News Corp phone hacking scandal showed poor judgment, took bad decisions and got too close to journalists working for Rupert Murdoch's newspapers, an independent watchdog said on Thursday.

While the Independent Police Complaints Commission (IPCC)rejected allegations of corruption involving two of the top personnel at the Metropolitan Police (MPS), it was highly critical of their and senior colleagues' media relationships.

One of the former policemen named by the IPCC said its release of two reports simultaneously appeared designed to cause "maximum damage" to his reputation or to generate publicity for the IPCC.

The IPCC said despite a growing clamor over phone hacking centered on Murdoch's News International, the British newspaper arm of his News Corp empire, senior people at the force appeared "to have been oblivious to the perception of conflict".

"It is clear to me that the professional boundaries became blurred, imprudent decisions taken and poor judgment shown by senior police personnel," IPCC Deputy Chairman Deborah Glass said in a statement.

The IPCC comments come after investigations into John Yates, the country's former top counter-terrorism officer, and Dick Fedorcio, the MPS media chief, over their relationship with Neil Wallis, a former deputy editor at the News of the World, the Murdoch tabloid at the heart of the phone-hacking furor.

Murdoch closed down the paper last year, and several News International executives and journalists have since been arrested by detectives investigating these and other allegations that public officials including police were bribed in return for information.

Fedorcio resigned last month after the MPS decided he would face charges of gross misconduct over the decision to hire Wallis in a media consultancy role after he left the newspaper in 2009. Wallis has since been arrested by detectives investigating allegations of phone hacking.

Yates quit his job last July, a day after Britain's top officer Paul Stephenson also stepped down, after it emerged he had forwarded the CV of Wallis's daughter to the head of the MPS's human resources department.

"You probably know that Neil has been a great friend (and occasional critic) of the Met in past years and has been a close adviser to Paul (Stephenson) on stuff/tactics," Yates, now an adviser to the Bahrain government, said in an accompanying email.

The IPCC concluded that there was no evidence of corruption but ruled that both men had breached internal policies.

"MAXIMUM DAMAGE"

Yates told Channel 4 News the IPCC had treated him unfairly and had not given him the opportunity to comment on the email.

He said he had merely been acting as a "postbox" in passing the details of Wallis's daughter to a colleague.

"One could say to publish both these reports together was either to cause maximum damage to people like me or to cause maximum publicity for the IPCC," Yates said.

"All you can hope for in these investigations is some balance, some fairness and some context. On all three the IPCC has failed," he added.

The relationship between police and News International executives and staff has come under the microscope with critics saying a cosy relationship, which included special briefings and meals at top restaurants, often arranged by Fedorcio, meant phone-hacking allegations were not properly investigated.

The News of the World's royal correspondent was jailed in 2007 for illegal intercepting the voicemail of senior royal aides, and Yates decided not to reopen the hacking probe in 2009 after less than eight hours' consideration.

A new investigation, now one of the largest conducted by the London force, was launched in January 2011 after News International, faced with a number of private legal actions, handed over more evidence to the police.

The new probe together with constant damaging revelations from the media and parliamentary and public inquiries led to Murdoch's son James quitting as chairman of Britain's BSkyB broadcaster last week.

(Additional reporting by Tim Castle; Editing by Michael Roddy)