Letter reveals NI paid Goodman £243k and executives were aware of hacking in 2007

News International executives were told four years ago that phone hacking was rife at the News of the World (NOTW) and paid a jailed employee a quarter of a million pounds after he claimed that Andy Coulson authorised – and then tried to hide the extent of – it when he was the paper's editor.

Previously secret papers show that Rupert Murdoch's most senior lieutenants paid the NOTW's disgraced royal editor, Clive Goodman, £243,000 in compensation soon after he had made damaging accusations against the company and its senior staff. These included the claims that phone hacking was widely discussed at NOTW editorial meetings until Mr Coulson "banned" mention of it. Goodman also alleged in a letter to the company that Mr Coulson promised him "a job at the newspaper" after he came out of prison if he "did not implicate the paper of any of its staff" in his mitigation plea.

The documents, released by the House of Commons Culture, Media and Sport Committee, also shed doubt on key aspects of James and Rupert Murdoch's evidence to MPs last month. Lawyers for the company claimed that parts of the Murdochs' evidence were variously "hard to credit", "self-serving" and "inaccurate and misleading".

But it is the allegation that Mr Coulson knew about phone hacking and the financial attempts to prevent such information coming out in an employment tribunal that is most damaging.

It will also be also troubling for David Cameron, who hired Mr Coulson as his media adviser on the basis that he knew nothing about phone hacking. Goodman's letter, dated 2 March 2007, was written soon after he was released from a four-month prison sentence and addressed to News International's director of human resources, Daniel Cloke. It registers his appeal against the decision of Les Hinton, who was then the company's chairman and Rupert Murdoch's closest adviser, to sack him.

Goodman argues he acted with the knowledge of senior journalists. He also reveals the paper continued to consult him on stories even though they knew he was going to plead guilty. Two versions of his letter were provided to the committee: one from Harbottle & Lewis was redacted to remove the names of journalists, at the request of police. The other, supplied by News International, was redacted to remove the names and all references to hacking being discussed in Mr Coulson's editorial meetings and to Mr Coulson's alleged offer to keep Goodman on staff. John Whittingdale, committee chairman, said Goodman's letter suggested there was "widespread" knowledge of hacking.