Former News Of The World editor, ex-royal reporter arrested

Coulson, the ex-Downing Street communications chief, was also being questioned over phone hacking during his time at the paper.

Police sources later confirmed that former royal editor Clive Goodman - who was jailed in January 2007 over the scandal - had been rearrested in connection with alleged payments to police.

Coulson, 43, and Goodman, 53, were being held for questioning in south London. The former editor had been expected to be arrested after an appointment at a station but Goodman - who currently works for the Daily Star Sunday - was held after a dawn swoop by officers at his home in Surrey.

Detectives are searching both Coulson's address in Forest Hill, south London, and Goodman's property.

Officers investigating Operation Elveden - the inquiry into payments to police by the News of the World - and Operation Weeting, the long-running hacking investigation, are questioning the pair.

The moves by Scotland Yard pile further pressure on the Prime Minister, who gave Coulson a job at No 10 despite his association with the scandal.

Coulson had been widely expected to face police action today but few had predicted the decision to rearrest Goodman, who was jailed in 2007.

It is the latest bombshell in a catastrophic week for News International chiefs, who announced they were shutting the Sunday tabloid because it had betrayed its readers' trust.

Goodman was arrested in August 2006 along with private investigator Glenn Mulcaire over allegations that they hacked into the mobile phones of members of the royal household.

Five months later the royal reporter was jailed for four months and Mulcaire for six months after they admitted intercepting voicemail messages, including some left by Prince William, now the Duke of Cambridge.

The Old Bailey heard the pair tapped into more than 600 messages on the phones of royal family aides.

Coulson responded by resigning as News of the World editor, saying he "deeply regretted" what happened and took "ultimate responsibility" for it.

Shockwaves from the hacking revelations and police payment allegations prompted David Cameron to promise today he would "get to the bottom" of the scandal.

Coulson was arrested at 10.30am on suspicion of "conspiring to intercept communications" and "corruption allegations contrary to Section 1 of the Prevention of Corruption Act 1906".

Mr Coulson was being questioned by detectives, Mr Cameron revealed he had grown close to his former adviser and built up a friendship. The Prime Minister said they discussed the hacking allegations while he was employed but he never had reason to doubt "the assurances he had given me and I accepted".

Of their contact since Mr Coulson's January resignation, he added: "I have spoken to him, I have seen him, not recently and not frequently, but when you work with someone for four years as I did, and you work closely, you do build a friendship and I became friends with him. He became a friend and is a friend."

Plain-clothed officers arrived at Coulson's detached home in Forest Hill, south London, shortly before lunchtime carrying evidence bags. One shouted "no comment" to reporters before informing them "nobody crosses this line" as he walked across the driveway.

Coulson has been dogged by allegations of phone hacking on his watch for years, forcing him to give up his positions as News of the World editor and then as the Conservatives' top spin doctor.

Coulson resigned from the No 10 post in January, saying the drip-drip of claims about illegal eavesdropping under his editorship was making his job impossible.