Jeremy Hunt backed Rupert Murdoch's controversial BSkyB bid in a memo to David Cameron just weeks before he was put in charge of the deal, it emerged yesterday.
The Culture Secretary also warned in the confidential note that Mr Murdoch's son James was "furious" at the Coalition's handling of the issue on November 19, 2010.
A month later the Prime Minister stripped Business Secretary Vince Cable of responsibility for the bid and handed it to Mr Hunt.
Last night Labour said the revelations, at the Leveson Inquiry into press standards, raised serious questions about Mr Cameron's judgment.
They pointed out that Dr Cable had lost responsibility for BSkyB amid fears over his impartiality after he told undercover reporters he wanted to wage "war" on the Murdoch empire.
But Coalition sources insisted that Mr Hunt's words did not show similar partiality.
They pointed to another part of the memo which read: "It would be totally wrong for the Government to get involved in a competition issue which has to be decided at arms-length."
Mr Hunt, who is likely to be called to give evidence to the inquiry next week, was also facing questions after it emerged that he sent 46 texts to the News Corp lobbyist Frederic Michel.
But in April, Mr Hunt had told MPs that his only contact with Mr Michel was during official meetings.
The texts and memos emerged as both Mr Michel and Mr Hunt's former special adviser Adam Smith took to the witness stand.
Mr Smith resigned earlier this year after admitting he had overstepped the mark in his dealing with Murdoch empire executives.
Harriet Harman, Labour's deputy leader, said it was clear from the evidence that David Cameron "should never have given" Jeremy Hunt the BSkyB job.
"He should already have resigned," she added.
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