The Labour MP has won the admiration of fellow politicians for doggedly investigating the phone-hacking scandal. What has the experience taught him, how has it changed his life – and what revelations are still to come?

A month ago, Tom Watson received word that the Guardian was about to expose the hacking of Milly Dowler's phone by the News of the World. With 72 hours to go, he cleared his diary; a few days later, he was averaging three hours sleep a night, as he and his staff picked through leaked documents, newspaper archives, personal testimony from phone-hacking victims, and more. As the MP who had been obsessively trying to cut through the murk surrounding News International for two years, he well knew that the most dramatic chapter in the two-year phone-hacking saga had arrived – and the imperative now was to work harder than ever.

So how have the last few weeks been? "Sleep-deprived, totally crazy," he says, sitting in his parliamentary office during what seems to be a rare moment of calm. "But also, there's been a great sense of relief. I think I said something to David Cameron about a month before: that there were powerful forces trying to cover this story up. At some points over the last two years, I thought it might blow. But I've also thought that the lid could be welded back on. But when Nick Davies broke the Milly Dowler story, that was the point where I knew they'd never get the lid back on."

And has he been surprised by what's happened since?

"Yeah. I guess two years ago, I felt that all this would probably cost Rebekah Brooks her job. I thought the scale of wrongdoing was so great that somebody on the UK side of the company would have to take responsibility. And I was absolutely convinced that there was a cover-up. But I didn't know that it would all travel abroad. I didn't know it would get to America and Australia, and everywhere that it has." The closure of the News of the World, he says, came as "a genuine shock" to him, but he says that the same applied to News International: "There was a huge consumer boycott, there was going to be no advertising . . . I don't think they had a choice."

Raised in Kidderminster in a family split between communists and passionate Labour supporters, Watson has been the MP for West Bromwich East since 2001. In the eyes of his parliamentary colleagues, he has undoubtedly been one of the heroes of the phone-hacking story – so much so, that when he speaks on the subject in the House of Commons, he is now greeted with a reverential hush. But three or four years ago, his reputation was very different: he was routinely described as a "bruiser", and known as one of a small circle of insiders that linked Gordon Brown's coterie to some of the most powerful elements in the trade unions.

In 2006, he was a junior defence minister, but resigned as part of the so-called "curry-house plot": the attempt at toppling Tony Blair that placed fatal cracks in his premiership, and led to his departure the following year. Six months after Gordon Brown's arrival in Downing Street, Watson became a minister in the cabinet office with a focus on "digital engagement", though this phase of his progress did not last long. In 2009, he was falsely accused of involvement in the infamous plan to set up an unseemly website for anti-Tory political gossip known as "Red Rag", and returned from a trip to Cornwall to find his next-door neighbour upset after the latter's bins had been rooted through. This, he says, was time of "constant anxiety" and "sleepless nights": he considered standing down as an MP, but settled for returning to the backbenches.

In response to the Red Rag accusations, he took legal action against the Sun and the Mail on Sunday. In short order, the Mail on Sunday apologised for the Red Rag story and paid him damages (the Sun soon followed suit), Watson joined the culture, media and sport select committee, and the Guardian broke the first stories about phone hacking at the News of the World running wider than a "rogue reporter", and big pay-offs to victims – all of which fed into a watershed select committee hearing on 21 July 2009.

That day, Watson and his colleagues interviewed four key people: Stuart Kuttner, who had just resigned as managing editor of the News of the World (and who yesterday became the latest NI figure to be arrested as part of Operation Weeting), former editor Andy Coulson (by then Cameron's head of communications), the then News of the World editor Colin Myler, and the company's legal head Tom Crone (who left the company three weeks ago). The latter had tried to have Watson excluded from the hearing on account of his legal action against the Sun, which gave the proceedings an additional charge. Watson's key questions focused on the £700,000 payment NI had made to Gordon Taylor, chief executive of footballers' union the PFA, though by his own admission, he wasn't quite sure what he was doing.

"When Myler and Crone first turned up, my knowledge was novice-level," he says. "I knew about three facts. But what I knew was that in any great scandal, you've got to follow the money. They were hick, amateur questions: I think I opened with: 'When did you tell Rupert Murdoch [about the payment]?' I thought that you might as well start at the top.

"They said: 'Oh no – we didn't tell Rupert Murdoch.' Then it was, 'Well, who did you tell? Who authorised it?' Myler got frustrated me with me, because I came back to this four or five times. He ranted. And don't forget: Crone had already tried to get me off the committee. So at that point, I thought: 'You're rude, you've tried to remove me from this committee, you've put me under extreme pressure for a number of years – there's more to this, and I'm getting to the bottom of it.' "When Myler was so over the top . . . it was like there was a big neon light behind his head, saying, 'Dig here.'"

So began two years of dogged work. In the build-up to last year's general election, the select committee's drive to investigate hacking temporarily faded – but Watson was already talking to hacking victims, dealing with "one killer insider at News International" who was secretly sending him material, and piecing together evidence already in the public domain. At one point, he and his staff went through five years of News of the World back-issues. ("You learn a lot about Kerry Katona," he says.) He was also liaising with his fellow Labour MP – and phone-hacking victim – Chris Bryant, and a small handful of journalists.

There is one fascinating subtext to the whole story: Watson's claim that Brooks has long been driven to damage him, which he says dates back to his move against Blair. "I had one particular chilling conversation in 2006," he says, "when I was told that she would never forgive me for doing what I did to 'her Tony'. When I was made an assistant whip under Brown, the Sun did a story saying it was an outrageous I'd been awarded a job. Whenever I moved, there was a dig. It's painful and it's not easy, but that's the job, and the culture we operated in. It's when it's scaled up that those attack pieces take on a greater significance."

How was it scaled up?

"Well, there was the Red Rag week, where they ran stories for six or seven days, accusing me of lying and worse, on the basis of a story that wasn't true. And then things like . . . people coming back to me, reporting conversations. Bob Ainsworth [then Labour defence secretary] met Brooks for a lunch and said she spent 15 minutes slagging me off before they could talk about defence policy. Those things end up coming back to you."

Of late, there have been reports that she told Labour insiders she would pursue Watson "for the rest of his life" – a story he dates to the Labour party conference of 2006. When the Red Rag story broke, he claims Brooks texted Labour cabinet ministers, demanding that he was sacked.

At one point, he says, a senior editor at the Sun made a point of sending him a message via another Labour MP: "Tell that fat bastard Watson we know about his little planning matter." This, he says, was a reference to his application to put a conservatory on his family home in the Midlands: a typical "non-newsy, low-level thing" that played its part in making him "start to think like a conspiracy theorist".

From a credible source, he has just discovered that in 2009, all of this turned completely pantomimic. "There were always people outside my flat, and I felt pursued," he says. "But then last Thursday, the home affairs correspondent of the BBC told me they had a story that they [the News of the World] hired private investigators to follow me around Labour party conference in 2009, when we were right in the middle of the first select committee enquiry.

"I laughed at that, because they'd have basically followed me around drinking Guinness with a load of fat blokes. If you're an ex-minister, it's a bit of a holiday. It wouldn't have been very productive. But in all seriousness, at that point the pressure was immense. There were little conversations with people: 'We've had News International on the phone, how aggressive are you going to be on this committee? What are you going to ask?'"

Who was asking that?

"People who worked at No 10. People I'd worked with before. In conversations, these things were dropped in."

On 10 July, his old friends at the Mail on Sunday ran a story claiming that Tony Blair had urged Brown to get him to back off News International. How much truth does he think there is in that?

"Er . . . They've both denied it. But if Rupert Murdoch were to phone Blair to ask him to get me to back off, it wouldn't surprise me. They're very close."

What does that mean? That he may well have done?

"Well, he's denied it. Two or three people in the party have told me that happened, but I can't stand it up."

Two weeks ago, Watson played his part in the select committee's questioning of James Murdoch, Rupert Murdoch and Brooks, which was followed by Myler and Crone's claim that a crucial part of James Murdoch's evidence had been "mistaken". Watson pushed for him to be issued with an immediate summons to return and give evidence, but was outvoted: the committee has now written to James Murdoch seeking further explanation, and its chairman, the Tory MP John Whittingdale, says it's "very likely" that he will eventually be recalled in person. Meanwhile, the story about the targeting of Sara Payne has broken ("I didn't think it could get any lower, and it has," he tells me), there are regular stories about the Metropolitan police (their reputation, says Watson, is "in tatters") and new information about the deletion of thousands of News International emails. So how much more is there to come?

"I think we're probably only about halfway through the number of revelations. I'm pretty certain there will be quite detailed stuff on other uses of covert surveillance. I suspect that emails will be the next scandal. And devices that track people moving around. That's just starting to come out."

Does he expect confirmation of the targeting of 9/11 victims?

"I don't know that. I want the prime minister to put pressure on as far as that's concerned, because it's internationally significant. What we know from the evidence we took in 2009 is that Glenn Mulcaire worked exclusively for the News of the World from 2001. He was on a £10,000-a-month contract. So if he was prepared to hack Milly Dowler's phone . . . you know . . . it's entirely conceivable that he would have been told to hack the phones of victims, and families of victims, of 9/11. What we need is certainty, so people can move on from there."

What other things will become public?

"People who aren't household names, but who are associated with people who have been the victims of high-profile crimes . . . I think there's a lot more of them to come out. Ordinary people whose lives have been turned inside out."

Ten days ago, Watson said he had seen no evidence that implicated any newspaper group other than News International in phone hacking – since when, there has been news of prospective cases against Trinity Mirror, the publisher of titles including the Sunday Mirror – and the barrage of accusation and denial surrounding Piers Morgan. A copy of Morgan's diaries, I notice, is sitting on the coffee table in front of us.

"I'm doing my research now," he says. "There are a lot of people on Twitter who are raising different points of fact with me. The good that I want to come from this is the industry recognising that it's got to reform and change. Everyone's got to play their role in that. And that probably requires other media groups, if there was wrongdoing, to get it out there and be honest about it."

Hanging over just about everything we talk about is a slightly awkward implied presence: the politician Watson used to be, a man happy enough to play his part in New Labour's often moronic dances with the Murdoch press, and issue shrill messages either aimed at, or inspired by, the red-tops. Not for the first time, he says he's "totally ashamed" about an occasion in 2001 when he called for Kate Adie to be sacked by the BBC after she was alleged to have revealed the details of a trip by Blair to Middle East: his quote was given at the behest of Downing Street and used for a characteristic BBC-bashing splash in the Sun.

He acknowledges the Blair and Brown governments' neurotic focus on "media management", and their cynical fondness for dishing out "populist messages to the newspapers". On the latter count, he again has form: in 2004, he ran Labour's infamous by-election campaign in the Birmingham seat of Hodge Hill, among whose choicest messages was: "Labour is on your side – the Lib Dems are on the side of failed asylum seekers."

That sounds, I tell him, like the kind of rhetoric that Labour copied from the tabloids. "It's not a great line," he says. "I don't think I'd write that again." By way of underlining another kind of repentance, he reminds me that though he voted for the Iraq war in 2003, he recently abstained when it came to the UK intervention in Libya, "because I'd never again vote for a war on the promise of a prime minister."

So, he has changed. "I have changed. This has been a profoundly life-changing event for me, in many ways. It's certainly changed my politics. When I was first elected, I was a completely naive and gauche politician. You look at the pillars of the state: politics, the media, police, lawyers – they've all got their formal role, and then nestling above that is that power elite who are networked in through soft, social links, that are actually running the show. Why didn't I know that 10 years ago, and why didn't I rail against it? Why did I become part of it? I was 34. I'm 44 now. I was naive. But I'll never let that happen again."