The Prime Minister has apologised after his ex-No 10 spin doctor was found guilty of plotting to hack phones while he was editor of the News of the World.
Andy Coulson, who was forced to resign as David Cameron's director of communications over the scandal, now faces up to two years in jail for hacking following the high-profile trial at the Old Bailey.
The jury of eight women and three men found him guilty of conspiring to hack phones but cleared ex-News International chief executive Rebekah Brooks of all charges.
Following the verdict, Mr Cameron said: "I take full responsibility for employing Andy Coulson. I did so on the basis of undertakings I was given by him about phone hacking and those turned out not to be the case.
"I always said that if they turned out to be wrong, I would make a full and frank apology and I do that today.
"I am extremely sorry that I employed him. It was the wrong decision and I am very clear about that."
Chancellor George Osborne added: "We gave him a second chance but, knowing what we now know, it's clear that we made the wrong decision."
Lord Prescott, who was targeted by the NotW while he was in the Labour government, said he wrote to Mr Cameron, questioning his decision to employ Coulson but received no reply.
He said: "Cameron's apology today is the very minimum he could do. But his blind acceptance of Coulson's innocence, with next to no due diligence, exposes his appallingly poor judgment."
Coulson showed no immediate reaction to the guilty verdict. He stood in the dock with his hands behind his back and clenching his jaw before taking a deep breath.
The jury are still considering verdicts on the 46-year-old, of Charing, Kent, who is also charged with two counts of conspiring with former royal editor Clive Goodman 56, of Addlestone, Surrey, to commit misconduct in a public office by agreeing to pay police officers for two royal directories. The both deny the charges.
Married father-of-three Coulson was recruited by Mr Osborne to head up the Tory media operation within months of resigning as News of the World editor in January 2007.
When Mr Cameron entered Downing Street the former journalist took on duties heading up the Number 10 spin operation, quitting shortly before he was arrested over the phone-hacking scandal.
Today's partial verdicts were delivered on the jury's eighth day of deliberations and the 138th day of the trial.
Brooks, 46, was cleared of hacking, misconduct in a public office for allegedly signing off payments to a Sun journalist's "number one military contact" between 2004 and 2012, conspiracy to pervert the course of justice and perverting the course of justice.
She appeared to try to keep her emotions in check when the first of the not guilty verdicts was announced, simply nodding towards the jury with a slight smile. Later, she left the court holding hands with her husband Charlie and made no comment to waiting reporters.
Retired managing editor Stuart Kuttner, 74, was also cleared of being part of the hacking conspiracy dating back to 2000 and spanning six years. As he left court, he gave his "enduring thanks" to his legal team.
Brooks's former personal assistant Cheryl Carter, 50, of Chelmsford, Essex, was cleared of perverting the course of justice by removing seven boxes from the NI archive just days before she was arrested in 2011.
The racehorse trainer Charlie Brooks, 52, of Churchill, Oxfordshire, and NI head of security Mark Hanna, 51, were cleared of perverting the course of justice around the time of police searches in July 2011.
The prosecution had alleged that because of the the sheer scale of phone hacking at the NotW, Brooks, Coulson and Kuttner must have known what was going on while they were in charge.
After Goodman and private detective Glenn Mulcaire were convicted of phone hacking in 2006, the bosses were alleged to have been involved in a cover up to keep the full extent of phone hacking secret.
Three more senior ex-NotW journalists have since admitted involvement in tasking the private detective - news editor James Weatherup, chief reporter Neville Thurlbeck, and assistant editor Greg Miskiw.
And reporter Dan Evans, who was caught hacking the phone of designer Kelly Hoppen in 2009, became a star witness by implicating 10 former colleagues, including Coulson.
But it was Brooks who was the editor when Mulcaire got his first annual contract with the paper for £92,000 in 2001.
And she was still in charge in 2002 when he hacked the phone of murdered schoolgirl Milly Dowler - an act which led to the eventual downfall of the Sunday tabloid.
Even though she was on holiday in Dubai at the time, the prosecution said her on-off love affair with her deputy Coulson meant they shared such confidences.
After Coulson took over the editorship in 2003 and Brooks went to the Sun, hacking really took off at the NotW.
Goodman, 56, said it was on an "industrial scale", while Evans told jurors even the "office cat" knew.
A host of politicians, sports people, celebrities, and members of the royal family were targeted by NotW staff and Mulcaire.
The then Kate Middleton was hacked 155 times, Prince William was hacked 35 times and Prince Harry nine times.
Goodman claimed his former boss had personally sanctioned his Alexander Project - a separate £500 a week deal with Mulcaire to target three royal aides between autumn 2005 and spring 2006.
And Evans said he showed Coulson a voicemail from the actress Sienna Miller to Bond star Daniel Craig indicating an affair.
An email about Calum Best in which Coulson wrote "do his phone" was, the prosecution said, a direct hacking order from the boss, although there was no firm evidence that the footballer's son was a victim.
Coulson admitted he knew about a hacked voicemail from former home secretary David Blunkett declaring his love for Spectator publisher Kimberly Quinn in August 2004 - but insisted that was the only one.
He said he did not know about Mulcaire and assumed Thurlbeck had hacked Ms Quinn himself.
His first reaction was to ban his chief reporter from investigating the story any further, but he was later persuaded it was justified in the public interest - a decision he admitted was a mistake.
Brooks said she was unaware of Mulcaire and what he was doing.
The only published story proved to come from hacking while she was editor came from the Milly voicemail and she was "shocked" to find out about it in 2011.
Kuttner, of Woodford, Green, Essex, also denied knowing about hacking and said he was an old fashioned journalist who believed in getting stories through traditional means.
Following Coulson's conviction for plotting to hack phones, Mr Blunkett said: "No one should misinterpret what has happened as an indictment of a free press or of the professionalism of most trained and dedicated journalists. Nor should they see this as 'vengeance' on the media as a whole or even one particular publisher.
"This was and remains a matter of criminality, of gross intrusion into the private lives of innocent people and a distortion and aberration of everything that high standards of journalism stand for.
"The damage that has been done to the lives of so many people, the undermining of trust (both between individuals and in the press in general), and the undermining both of personal relationships and of professional standing, can never be restored."
The campaign group Hacked Off said in a statement: "The trial also shone a light on the appalling, systemic newsroom culture of bullying, lies, intimidation and intrusion that has devastated the lives of many people. From royalty and Cabinet ministers to victims of crime and bereaved families, nobody was safe."
A spokesman for News UK - the British newspaper publishing arm of Mr Murdoch's media empire - said that they had put in place measures to ensure that the wrongdoing at the News of the World could not happen again.
The jury will resume deliberations from 11am tomorrow.
Coulson looked ashen-faced as he left the court at around 6pm.
He ignored questions from journalists and left in a black taxi.