By Jodie Ginsberg
LONDON (Reuters) - Rupert Murdoch's powerful British news operation reversed course on Friday and admitted responsibility in a phone hacking scandal that had already cost the prime minister's spokesman his job.
News International, parent company of Britain's top-selling News of the World tabloid, had always vigorously denied it knew journalists were hacking the phones of members of the royal family, politicians, celebrities and sports stars, and blamed a handful of "rogue reporters" for the scandal.
Admission of liability for hacking the phones of eight people -- including actress Sienna Miller and politician Tessa Jowell -- and agreement to pay compensation amounts to a major turnaround for the company, part of Murdoch's global media empire News Corp.
Analysts said the move was an attempt to draw a line under the case and limit potential financial costs as News Corp tries to push ahead with its planned purchase of BSkyB, a deal that has angered other British news operators who fear the group's growing influence over Britain's media.
"Following an extensive internal investigation and disclosures through civil legal cases, News International has decided to approach some civil litigants with an unreserved apology and an admission of liability in cases meeting specific criteria," News International said in a statement.
"We have also asked our lawyers to establish a compensation scheme with a view to dealing with justifiable claims fairly and efficiently ... We will, however, continue to contest cases that we believe are without merit or where we are not responsible."
Media consultant Steve Hewlett told Reuters: "This is being driven by business considerations because clearly the reputational damage is just mounting. The price that they will pay for admitting liability is way lower than the consequences of fighting on all fronts."
Earlier this week, two reporters were arrested as part of the long-running investigation into the scandal. The men, including former senior News of the World editor Ian Edmondson, were held on suspicion of conspiring to intercept communications and unlawful interception of voicemail messages.
Edmondson was sacked after an internal inquiry into his conduct. The other man was identified as Neville Thurlbeck, the paper's chief reporter.
The scandal dates back to 2005/6, when the News of the World's royal reporter and a private detective were arrested and later jailed for snooping on the voicemail messages of royal aides.
London's Metropolitan Police launched a new inquiry last January after being severely criticized by some politicians and celebrities who suspected they too had had their voicemail intercepted.
Critics argued the original police probe had not gone far enough, and some have suggested detectives were too close to the News of the World. Police have denied this.
The scandal cost the paper's former editor Andy Coulson his later job as head of communications for Prime Minister David Cameron in January, although Coulson always insisted he knew nothing of the phone hacking.
Murdoch's News Corp, which also owns The Sun and The Times newspapers, was given the green light by the government to take full control of British satellite pay-TV group BSkyB last month.
(Additional reporting by Paul Sandle and Kate Holton, Editing by Georgina Prodhan/Ruth Pitchford)