Labour MP who led campaign against phone hacking also says News of the World aimed to investigate MPs' private lives

Rupert Murdoch's News Corporation is a "toxic institution" that operated like a "shadow state" in British society, according to a Labour MP who on Thursday published a book about the phone-hacking scandal.

Tom Watson, joint author of Dial M for Murdoch, said that the book also featured allegations that Murdoch's News of the World set out to search for "secret lovers" or "extramarital affairs" of MPs on the culture, media and sport select committee in 2009.

At a packed press conference, Watson, a member of the Commons culture select committee, said that the surveillance revelation – passed to him by former News of the World chief reporter Neville Thurlbeck – demonstrated how the Murdoch organisation tried to intimidate parliament.

Thurlbeck gave Watson an interview, with a witness present, in which he said that the then News of the World editor, Colin Myler, told journalists on the Sunday tabloid to "find out everything you can about every single member".

At the time, the select committee was conducting its second inquiry into phone hacking, in the wake of revelations in the Guardian that the practice went beyond a single "rogue reporter" at the tabloid.

The aim was to discover "who was gay, who had affairs, anything we can use," according to Thurlbeck, as quoted in the book. "Each reporter was given two members [MPs] and there were six reporters that went on for around 10 days."

Thurlbeck later released his own statement, saying he was "surprised and disappointed" with Watson, because he said that the MP had chosen to make a private conversation public. He said that he had "no evidence" to support the belief that the monitoring request came from the editor's office and added:

"All the staff were very reluctant to carry out this surveillance for logistical and ethical reasons and they introduced a degree of procrastination until the plan was suddenly and unexpectedly halted by executives 10 days later and before any surveillance had taken place."

Watson and his co-author Martin Hickman, an Independent journalist, said they believed that pressure on MPs at the time influenced the decision not to compel Rebekah Brooks, who was then News International's chief executive, to give evidence before the committee.

However, the committee chairman John Whittingdale, a Conservative MP, said that he believed that was not the case. "At no point did anybody suggest that there would be any consequences if we went to call Rebekah Brooks, or if we said bad things about her or any of them."

Watson was also asked by the Times if he was cashing in on his parliamentary activity. He said that the advance for the book was paid entirely to Hickman, a university friend, and indicated that if any royalties were generated he would declare them to Parliament.

Separately, it emerged that the Sun's royal editor was one of three people arrested on Thursday by Scotland Yard detectives investigating alleged illegal payments to public officials. Duncan Larcombe, 36, was arrested at his home in Kent on suspicion of conspiracy to corrupt and conspiracy to cause misconduct in a public office.

He is the 12th current and former Sun journalist to have been arrested. All of the arrests follow information passed to the Met Police's Operation Elveden by News International's inhouse management and standards committee.

Detectives also arrested a former serviceman, 42, and a woman, 38, at their home in Lancashire. Officers carried out searches at the homes of those under arrest. The man was held on suspicion of misconduct in a public office, and the woman on suspicion of aiding and abetting misconduct in a public office. All three were later released on bail.

Scotland Yard said: "Today's operation is the result of information provided to police by News Corporation's management [and] standards committee. It relates to suspected payments to a public official and is not about seeking journalists to reveal confidential sources in relation to information that has been obtained legitimately."

A total of 26 people have been arrested since last July as part of Operation Elveden, which is linked to the Met's investigations into phone and computer hacking.