Rebekah Brooks, the former News of the World editor who resigned as chief executive of News International at the height of the phone-hacking scandal, received £1.7m in cash, the use of a London office and a chauffeur-driven limousine as part of her severance package from the newspaper group.

Brooks, a favourite of Rupert Murdoch who rose from being a secretary on the features desk of the Sunday newspaper to the very top of the mogul's UK operation, quit in July amid claims over the alleged illegal activities carried out by her executives and reporters. Days after she resigned, she was arrested and bailed in connection with allegations of phone hacking and corruption.

Records at Companies House show that she has resigned from 23 directorships related to the firm. However, the Observer has learned that, along with a generous payoff and continued use of her company limousine and driver for two years, Brooks, 43, has been given an office for the same period of time in an affluent central London area which her spokesman asked the Observer not to reveal for security reasons.

The decision to give Brooks an office will inevitably be raised on Thursday when James Murdoch, the 38-year-old son of Rupert and chairman of News International, returns to Westminster to answer questions from the Commons culture, media and sport select committee about his knowledge of illegal activities by his employees.

Tom Watson, the Labour MP who helped lead the fight to expose the phone-hacking practices carried out by News of the World journalists, queried the company's decision. He said: "It is remarkably curious that such an generous package is given to Ms Brooks when others have been cut loose. It is almost as if she hasn't really left the company. I am sure Mr Murdoch will want to explain the decision to his shareholders."

James Murdoch is set to make his second appearance before the Commons committee this week after discrepancies arose between his previous testimony and that of his key lieutenants.

During the session he is also likely to be questioned about previous claims that illegal practices did not take place at the Sun newspaper, where Brooks was editor between 2003 and 2009 before being elevated to the role of chief executive of News International.

The investigation into police corruption and newspapers' illegal payments to officers was extended to the Sun last week, as detectives arrested one of its reporters at his home near Windsor.

Jamie Pyatt, 49, the first journalist from the title to be arrested by Scotland Yard's Operation Elveden into payments to police officers, has been at the Sun since 1987 and worked under Brooks when she was editor there.

Dave Wilson, the chairman of Bell Pottinger, the public relations group hired by Brooks to deal with the fallout from her resignation, declined to comment on the "confidential" details of her severance package.

News International also declined to comment.