A woman passes a poster signed by street artist Dr. D showing a portrait of News Corp head Rupert Murdoch in London July 11, 2011. [Photo/Agencies]

Murdoch, who had already taken a shock decision last week to shut the News of the World, Britain's biggest-selling Sunday paper, and has flown to Britain, had tried to seize the initiative again by withdrawing News Corp's offer to spin off BSkyB's Sky News channel.

The withdrawal of the offer, made to get the deal approved, opened the way for the government to refer the matter to the Competition Commission, whose investigation is likely to take a year or more.  

"It's a smart tactical move," said Ian Whittaker, media analyst at Liberum Capital, noting that it also freed the government from a politically unacceptable but apparently unavoidable decision to approve the deal in the current climate.

"It gets the government off the hook. But there's still a very strong chance that in the end it will not go through in the short term or medium term. There are enough players out there that are opposed," he told Reuters.

Cameron under fire

Murdoch's News Corp wields influence from Hollywood to Hong Kong and owns the US cable network Fox and the Wall Street Journal as well as the Sun, Britain's biggest selling paper.

Conservative Prime Minister David Cameron has come under fire for his closeness to Murdoch's media empire; he is a friend of Rebekah Brooks, the News International chief executive who was editor at the News of the World during much of the alleged hacking; and he chose another former News of the World editor, Andy Coulson, as his communications chief.

Coulson, who quit in January over the scandal, was arrested last week for questioning in connection with phone-hacking and allegations that his reporters illegally paid police for information.

Cameron has defended his choice of Coulson and noted that Brown's Labour party also courted Murdoch when it was in power.