A security guard stands at the entrance to News International offices in Wapping, London, July 7, 2011. Rupert Murdoch's News Corporation will close its tabloid News of the World after this Sunday's edition, as a result of an escalating phone hacking scandal, James Murdoch said on Thursday.[Photo/Agencies]

Rupert Murdoch will shut down Britain's biggest selling Sunday newspaper, the News of the World, in a startling response to a scandal engulfing his media empire.

As allegations multiplied that its journalists hacked the voicemails of thousands of people, from child murder victims to the families of Britain's war dead, the tabloid hemorrhaged advertising, alienated millions of readers and posed a growing threat to Murdoch's hopes of buying broadcaster BSkyB.

The announcement, one of the most dramatic in the 80-year-old press baron's controversial career, is widely seen as an effort to prevent the crisis from spreading beyond the News of the World to more lucrative parts of Murdoch's empire.

The scandal has also become a huge embarrassment for British Prime Minister David Cameron because of his close ties to some of the figures at the center of the controversy.

Murdoch's son James, who chairs the British newspaper arm of News Corp, said News of the World has been "sullied by behavior that was wrong."

"Indeed, if recent allegations are true, it was inhuman and has no place in our company," he said in a statement. "The News of the World is in the business of holding others to account. But it failed when it came to itself."

He praised the News of the World for "a proud history of fighting crime, exposing wrong-doing" and setting the nation's news agenda. But he said the paper, which his father bought in 1969, was unviable because of the scandal.

The announcement that the paper's final issue will be on Sunday, July 10 may even be a signal that the famously excessive practices of British tabloid journalism will be less prevalent in the future.

The news came as a complete shock to its 200 staff.

There were gasps and sobbing as they were told of the closure of the 168-year-old title, which from its earliest days in the Victorian era sought to titillate the British working class with sensational journalism about sex and crime.

The profits of the final edition of the News of the World, which was acquired by the Australian-born Murdoch back in 1969 in his first foray into Fleet Street, will go to charity.

"No one had any inkling at all that this was going to happen," said Jules Stenson, features editor of News of the World.

On the surface, it seems like a bold gamble to sacrifice a historic title that had helped establish Murdoch in a British newspaper industry that he has dominated in recent decades.

The closure doesn't mean that Murdoch's problems from the scandal are over. Growing popular and political anger over the phone hacking saga had spurred concerns that there could be snags in securing government approval for News Corp's $14 billion bid for BSkyB, of which it already owns 39 percent.

Stephen Adams, a fund manager at Aegon Asset Management, which is one of the biggest shareholders in BSkyB, told Reuters he saw News Corp's move as aimed at restoring or remedying a tarnished reputation.

"But we also critically see it as a reflection of News Corp's desire to progress the BSkyB bid and have full ownership of the company," he said.

Cameron's right-of-center government had already given an informal blessing to the takeover, despite criticism on the left that it gave Murdoch too much media power.

While the costs of closing the News of the World will be modest, investors and analysts are still concerned about the wider implications of the saga. News Corp's U.S. shares fell more than 5 percent on Wednesday, and edged 0.23 percent lower on Thursday in a rising overall market.

"I don't see how this (BSkyB) deal can go ahead. It's politically totally unacceptable now," said Alex Degroote, media analyst at Panmure Gordon. "To me, it's an explicit admission of culpability."

Still, others said that any attempt to block the BSkyB deal at this late stage would likely spark a legal challenge from News Corp, and one the company would likely win. A delay is likely, "but they can't delay it forever so barring some major development this deal is going to get agreed," said media consultant Steve Hewlett.

The outrage targeted at the News of the World has turned attention on Cameron's own links to the paper, and in particular his friendship with Murdoch's close confidante and head of his British newspaper arm Rebekah Brooks.

Murdoch still faces pressure to remove Brooks, a friend of Cameron's. Her editorship of the News of the World a decade ago is at the heart of some of the gravest accusations.

Cameron has already been hit by the scandal: he chose former News of the World editor Andy Coulson as his communications director, even though Coulson was caught up in the hacking scandal. One of his reporters and a private investigator had been convicted of hacking into phones of members of the royal family, although Coulson insisted he knew nothing about the phone hacking.

As new allegations surfaced, Coulson had to resign from Cameron's team earlier this year. The Guardian newspaper reported on Thursday that Coulson would be arrested on Friday. Police declined to comment.

SUNDAY SUN

It is not yet clear if the scandal will damage James Murdoch, the presumed successor to his father, and other News Corp executives such as Les Hinton, who is now running the company's Dow Jones operation but was previously head of Murdoch's British newspaper arm.

Speculation is rife that the company will turn The Sun, its tabloid daily that is Britain's best-selling newspaper, into a seven-day operation rather than the current six to tap the Sunday market. Despite difficult times for newspapers, the News of the World is still selling 2.6 million copies a week.

The website www.sunonsunday.co.uk was registered on Tuesday by an unknown party.

"Our view is that this does not mean the News of the World will be closed. It will simply mean that there will be a seven-day Sun. The stain on the brand was going to be permanent, and this is a perfectly sensible decision," said Claire Enders, head of Enders Analysis Media Consultancy.

Journalists said that an emotional News of the World editor Colin Myler had read out the announcement at the east London newsroom where Murdoch changed the face of British journalism in the 1980s by breaking the power of the printing unions.

News that Brooks would remain in place as chief executive triggered anger from staff. James Murdoch told Sky News he was satisfied Brooks knew nothing of the crimes allegedly committed when she was editor.

Asked how staff felt toward Brooks, one reporter said there was a sense of "seething anger" and "pure hatred" directed toward her: "We think they're closing down a whole newspaper just to protect one woman's job."

British opposition leader Ed Miliband said Brooks should go, echoing the view of the journalists' trade union. The union said some journalists at The Sun had walked out in support of their colleagues on Thursday evening.

WAR DEAD

Investigations into phone hacking at the News of the World have been bubbling for several years and until recently only celebrities and other well-known figures were believed to have been victims.

But the scandal exploded earlier this week after revelations an investigator working for the paper may have listened to -- and deleted -- the voicemail messages of a missing 13-year-old schoolgirl, later found murdered.

The scandal deepened on Thursday with claims News of the World hacked the phones of relatives of British soldiers killed in action in Iraq and Afghanistan. Britain's military veterans' association broke off a joint lobbying campaign with the paper and said it might join major brands in pulling its advertising.

Many of the paper's readers are ardent supporters of the armed forces so suggestions it may have hacked the phones of the families of grieving service personnel only further alienated a core readership already horrified by suggestions its reporters accessed the voicemails of missing children and bombing victims.

The main accusations are that journalists, or their hired investigators, took advantage of often limited security on mobile phone voicemail boxes to listen in to messages left for celebrities, politicians or people involved in major stories.

Disclosure that the practice involved victims of crime came when police said a private detective working for the News of the World in 2002 hacked into messages left on the phone of murdered schoolgirl Milly Dowler while police were still looking for her.

Police have also been criticized over allegations officers took money from the News of the World for information. London's Evening Standard newspaper said on Thursday that police officers took more than 100,000 pounds ($160,000) in payments from senior journalists and executives at the paper.

Shortly before the announcement the paper would be closing for good, advertising website Brand Republic said the paper had lost all advertising for this weekend's edition.

Before the controversy worsened, formal approval for the BSkyB deal had been expected within weeks after the government gave its blessing in principle. But it now seems unlikely for months, although officials denied suggestions that they were delaying a decision because of the scandal.

"The Secretary of State has always been clear that he will take as long as is needed to reach a decision. There is no 'delay' since there has been no set timetable for a further announcement," a government spokesman said. Some British media reported that a decision was now expected in September.