Inside the News of the World the announcement was followed first by shock, then tears, and then anger. There was also immediate speculation about whether the axed newspaper's best-selling place in the Sunday market would soon be the target of a seven-day Sun.

The News of the World's political editor, David Wooding, said the news was greeted with great shock. "Some people are crying, very upset," he told the press outside News International's offices in Wapping, east London.

He added: "People are just standing round in the office looking dazed. They just can't believe what's happened. All I am concerned about is that 200 professional people who have done nothing wrong have lost their jobs because of what's happened five or six years ago."

It emerged on Thursday evening that the internet domain name thesunonsunday.co.uk had been registered earlier this week, although the purchaser's identity remained unclear.

What seems certain, however, is that News International is not going to relinquish its market-leading position in the Sunday red-top market without a fight after the NoW paid the ultimate price for being irretrievably mired in the phone hacking scandal.

The company had already announced plans to introduce more seven-day integration at its four titles, the News of the World, the Sun, Times and Sunday Times.

News International PRs declined to be drawn on whether the company would continue to publish a tabloid title on a Sunday. "It's not true at the moment," one spokeswoman said.

The News of the World sells 2.66m copies and is thought to make more than £130m in circulation and advertising revenue annually.

Understandably such speculation about the future shape of the market failed to console the News of the World's 200 staff, 160 of whom are expected to lose their jobs after the closure announcement, according to one Wapping source.

The news was delivered to staff by News International's chief executive, Rebekah Brooks. The paper's editor, Colin Myler, then conducted a Q&A session, later calling it the saddest day of his career.

He said: "Whatever price this staff are paying for past misdeeds, nothing should diminish everything this great newspaper has achieved. It has one of the best campaigning and investigative records of any newspaper in the world."

Shell-shocked journalists gathered in The Cape, a local pub. The National Union of Journalists reported that the Sun's entire subediting desk – 30 to 35 journalists – had briefly walked out in protest at the closure of their Sunday stablemate.

Dan Wootton, the paper's showbiz editor, told the Guardian that staff were devastated and said: "The team was not given the chance to turn the paper around."

He added: "Obviously there is a lot of anger at the newspaper."

Computers at the newspaper were disconnected from the internet after the announcement that the paper would close, apparently to prevent staff from communicating their reaction via Twitter.

Wooding said: "I have just been told I am on 90 days' notice. I don't know what the commercial reasons are for doing this. The NoW sells four out of 10 newspapers every Sunday. Even if our circulation was halved we would still be selling more than many red tops."

Earlier he told BBC News that staff "knew we were in a bad place but we never expected a bombshell as big as this".

He added: "A couple of days ago when we heard about Milly Dowler [phone hacking] – which none of us had the slightest idea about – we thought 'how can it get any worse than that?' This morning we hear the business about the soldiers and you think 'well things can get worse', and then this happens."

Many of the staff are understood to perceive the Sunday red-top's closure as a move to protect Brooks, who was editor of the News of the World when some of the alleged phone hacking took place and who has come under increasing pressure to resign over the scandal. Brooks, who continues to be supported by James Murdoch, maintains that she had no knowledge of any wrongdoing at the paper.

Michelle Stanistreet, general secretary of the National Union of Journalists, said the move showed the "contempt that the Murdoch empire has for its loyal staff". She added: "This is an act of damage limitation to salvage Murdoch's reputation and that of News International, both of which are now tarnished beyond repair … Closing the title and sacking over 200 staff in the UK and Ireland, and putting scores more freelances and casuals out of a job, is an act of utter cynical opportunism."

Earlier this week sales executives at Associated Newspapers, home to the Daily Mail and Mail on Sunday, smelled blood as a boycott by the public and by advertisers gathered pace. The Mail on Sunday has a circulation of 2.1m and alongside the Sun and NoW is considered to be a "must-buy" by most advertisers.

Since the Dowler revelation on Monday the NoW has suffered an exodus of advertisers unwilling to risk the wrath of the public by being tarnished by association. Companies including Boots, O2, 3, and Sainsbury's, accounting for almost £10m in annual advertising spend on the title – more than 20% of NoW's total yearly haul – pulled their campaigns.

The question is, if there is a launch of what has been termed a Sunday Sun how long News International will wait?

On a financial basis the NoW made about in £2m in circulation revenue and about £660,000 in advertising revenue each week. However, observers warned of potential dangers of a rapid return to the market amid the current turmoil.

"If you do it too soon it would be seen as cynical and distasteful and they run the risk of destroying the Sun brand as well," said one senior media executive.

One City source believes that News Corporation would be politically foolish to relaunch the title before it pushes through its proposed £8bn-plus acquisition of the 60% of BSkyB it does not already own. The culture secretary, Jeremy Hunt, is expected to give his final decision on whether to approve the deal in September, and News Corporation has been desperate not to be tarnished by the phone-hacking debacle.