James Murdoch knew of widespread phone hacking, two former News of the Wolrd executives have claimed.
They say that the heir to the News Corporation empire was "mistaken" in his testimony on Tuesday to the British parliament investigating the shocking scandal, the Australian Broadcasting Corporation reports.
The startling allegations come as an editor at The Sun newspaper was suddenly sacked.
Four security guards approached features editor Matt Nixson at his desk and said his contract was terminated, took his computer and told him to leave, ABC reports.
The Sun, also owned by Rupert Murdoch's News International, released a statement saying an internal investigation had found evidence of wrongdoing by Nixson while he was at the News of the World.
Former editor Colin Myler and former legal adviser Tom Crone, both former News of the World staff members, have released a statement insisting they had warned James Murdoch that there was evidence of widespread phone hacking at the News of the World before he authorized a big payout in 2009 to the English soccer executive Gordon Taylor.
If the accusations are correct, James Murdoch may be accused of deliberately misleading parliament.
"We would like to point out that James Murdoch's recollection of what he was told when agreeing to settle the Gordon Taylor litigation was mistaken," the statement said.
"In fact, we did inform him of the Neville email which had been produced to us by Gordon Taylor's lawyers."
The email referred to was allegedly sent by a junior reporter to the private investigator Glenn Mulcaire - who has served time in jail for phone hacking - containing transcripts of messages Mulcaire had hacked.
The News of the World had a former chief reporter with the name Neville Thurlbeck.
If James Murdoch did know about the email then it raises serious questions about News International's claim that the phone hacking was due to a rogue reporter.
A friend of the two men said: "To contradict James will be as good as coming out and calling him a liar", the Guardian reports.
During the parliamentary hearing on Tuesday, James Murdoch was asked: "When you signed off the Taylor payment, did you see or were you made aware of the for Neville email, the transcript of the hacked voicemail message?"
James Murdoch told the committee he "was not aware of that at the time".
He released a statement saying he stands behind his testimony to the select committee.
But committee chairman John Whittingdale told Reuters the allegations are serious.
"If it is the case that Colin Myler and Tom Crone are in conflict on a serious issue, then that is a matter we would want to obtain a response from James Murdoch on," he said.