The Electoral Commission is to be urged to hold an investigation into whether Rupert Murdoch's newspaper empire was covertly funding the Conservative Party while David Cameron was leader of the opposition.

The call from the Labour MP Tom Watson, who has played the lead role in uncovering the telephone-hacking scandal at Rupert Murdoch's former newspaper the News of the World, follows a BBC revelation about large payments to David Cameron's former spin doctor, Andy Coulson.

Mr Coulson resigned from the editorship of the News of the World early in 2007, after the newspaper's royal correspondent Clive Goodman and the private detective Glen Mulcaire were jailed for phone hacking.

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It has now emerged that Mr Coulson received a pay-off of hundreds of thousands of pounds from Rupert Murdoch's company, News International. The BBC's Business Editor Robert Peston also disclosed last night that Coulson was still being paid large sums up to the end of 2007.

Mr Coulson was appointed Director of Communications for the Conservative Party in May 2007, and took up his post in July, implying that he was receiving large amounts from News International up to five months after he joined the staff of the Tory party.

A Conservative Party spokesman said last night that party managers did not know this at the time. "Senior party officials have no knowledge of Andy Coulson's severance arrangements," she said.

But the discovery that Mr Coulson was acting as Mr Cameron's adviser on handling the media at the same time as he was receiving payments from the country's largest media organisations, has raised new questions about the relationship between David Cameron and the Murdoch empire.

Mr Watson said last night: "Did anyone at the Conservative Party know about these payments to Andy Coulson? If these were discretionary payments, they must surely constitute an undeclared donation to the Conservative Party. I will be asking the Electoral Commission to investigate."

Mr Coulson resigned from the NOTW in January 2007 after Goodman and Mulcaire were jailed. Mr Coulson denies knowing about their activities, but said he accepted responsibility as the man in charge of the newspaper. Mr Cameron justified the decision to hire him on the grounds that he deserved "a second chance".

According to the BBC, his severance package included two years' salary and he was allowed to keep other work benefits, such as private healthcare, for three years, and his company car.

After the election, Mr Coulson moved from Conservative headquarters to take over as Director of Communications in Downing Street. He resigned in January, as suspicion was spreading that the phone hacking involved more than one rogue reporter, as the company had originally claimed. He was arrested in July.

Last week, the Commons Culture and Media committee made public a letter written by Clive Goodman in March 2007, appealing against his sacking, in which he alleged that hacking was discussed in editorial conferences while Mr Coulson was editor.