Rupert Murdoch found himself under fire for the first time in the phone-hacking scandal today when his judgment was called into question during a parliamentary debate.

As Conservative MPs raised concerns about News International, Murdoch was criticised for promoting Rebekah Brooks after she admitted illegal payments were made to police by the News of the World.

Labour MPs used parliamentary privilege in the commons debate to criticise the chairman and CEO of News Corporation, which owns the newspaper publisher, and his senior executives, who are battling claims that the NoW endorsed the illegal hacking of mobile phones.

Tom Watson, a Labour member of the Commons culture select committee, placed Murdoch in the line of fire by accusing him of appointing Brooks as chief executive of News International knowing that she had admitted that illegal payments had been made to police.

The former minister cited evidence by Brooks to the culture committee in 2003 in which she admitted that the News of the World had paid police officers in the past for stories. This was condemned by the committee and by the Met as illegal.

"When Murdoch appointed Brooks he did so in that knowledge," Watson said of the ruling from the Commons committee. Les Hinton, then chair of News International, later told the committee that Brooks subsequently told him she had "not authorised payments to policemen"; he said her evidence was meant to suggest "there had been payments in the past".

Watson was speaking as MPs debated whether to refer the phone-hacking allegations to the powerful Commons standards and privileges committee. The standards committee is to examine whether the News of the World breached ancient parliamentary privilege by endorsing the hacking of MPs' phones.

Watson recommended the media mogul be summoned to give evidence. "I doubt Rupert Murdoch knows about these incidents, but he is responsible for appointing to positions of great power people who should know about them," he said. "For that reason, he too should explain his actions to the committee." He accused Brooks of refusing three invitations to give evidence to the culture committee, which examined the claims in the last parliament. "We gave up."

Paul Farrelly, a former journalist who is another Labour member of the committee, used parliamentary privilege to make allegations about Andy Coulson and Tom Crone, legal manager of News Group Newspapers (part of NI). Coulson, now No 10 director of communications, resigned as NoW editor in 2007 after the paper's royal editor, Clive Goodman, and a private investigator, Glenn Mulcaire, were jailed for phone-hacking. Coulson denies any knowledge of the hacking.

Farrelly said people had wrongly assumed that his committee had cleared Coulson because it could find no evidence linking him to the hacking. "We were incredulous of the notion that such a hands-on editor would not have had the slightest inkling about what his staff, and what private investigators employed by the paper, were up to."

Farrelly alleged that Coulson personally spiked a News of the World story about Gordon Taylor, then chief executive of the Professional Footballers' Association. Coulson reportedly did this after a conversation with Crone, who had had a denial from Taylor's lawyers. A £700,000 payout by News International to Taylor, revealed by the Guardian in July 2009, prompted the latest round of allegations.

"We thought it would be highly unusual for an editor to accept a denial at face value," Farrelly said. "We'd expect an editor to ask, 'How can we stand this story up?' The answer, we thought, would inevitably involve some discussion of the source of the story. We suspected, although we could not prove it, that the story was spiked, in part at least, because any libel suit would have exposed the phone hacking that was going on."

Farrelly alleged that Crone misled his committee. "He denied admitting a pay-off to Clive Goodman, after he got out of jail. He also misled our committee on the identity of the junior reporter involved in transcribing phone hacking messages."

Watson was highly critical of people who refused to appear before the committee. These included Greg Miskiw, former assistant news editor at the paper, who said he was too ill to attend; Mulcaire, who said through an intermediary he would not give evidence; and Goodman, who said he was unavailable.

Farrelly also criticised Andy Hayman, former head of the Met's special operations unit, now a Times columnist, who had been in charge of the Mulcaire inquiry. He also criticised Hayman's successor, assistant commissioner John Yates. "Had Mr Hayman been in charge of the Watergate inquiry, President Nixon would have safely served a full term. His line is one which … John Yates is finding increasingly difficult to maintain … We were very critical of the evasiveness displayed by Mr Yates in the police evidence to us."

Nick Soames, a former defence minister and a friend of the Prince of Wales, whose views often reflect those of the royal household, highlighted a report by the information commissioner. This revealed that 305 journalists from across Fleet Street had secured "illegal information". Soames said: "If the Press Complaints Commission had any gumption or mettle … we would not need to refer this matter to the select committee."

Paul McMullan, the former NoW executive who spoke on the record to the Guardian yesterday, was deputy features editor at the NoW when Coulson arrived as deputy editor in May 2000. They worked together for 18 months. A Channel 4 website report last night incorrectly suggested McMullan worked with Coulson for just a few months, casting doubt on his claims Coulson must have known of the hacking.