Britain was looking for a way out of approving media baron Rupert Murdoch's multi-billion dollar deal to buy broadcaster BSkyB amid a phone-hacking scandal that has damaged the PM and raised broader questions about politicians' relations with the media.

Deputy Prime Minister Nick Clegg, from the junior coalition partner the Liberal Democrats, urged Murdoch to reconsider the bid after revelations one of his newspapers hacked into the phones of murder victims and relatives of Britain's war dead.

'Do the decent thing, and reconsider, think again about your bid for BSkyB,' Clegg told BBC News after meeting relatives of one of the victims of phone-hacking, a murdered schoolgirl.

The government, which faces a stormy parliamentary debate on Wednesday, earlier asked media regulator Ofcom and the consumer watchdog to reassess the bid in the light of the scandal, a move that could provide a basis to block the buyout.

The new request to Ofcom, which is already assessing whether News Corp is a 'fit and proper' holder of a broadcast licence, and the Office of Fair Trading follows a report in the Independent newspaper that government lawyers were drawing up plans to block the BSkyB deal.

Shares in BSkyB dropped more than 7 percent on Monday morning after a similar fall on Friday. News Corp  shares fell more than 7 percent in New York last week.

'We believe the deal is all but dead,' Panmure Gordon analyst Alex DeGroote said.

The head of UK equities at one top 30 investor in BSkyB told Reuters they expected the deal to be delayed. 'I believe the takeover will happen in due course but it is unlikely to go through until next year at the earliest,' the investor said.

Murdoch flew to London on Sunday from the US to try to contain the damage to his media empire, which wields influence from Hollywood to Hong Kong and includes US cable network Fox and the Wall Street Journal as well as Britain's biggest selling paper, the Sun.

He has shown no sign of backing away from the BSkyB deal. Sources close to his company said he could consider other options to get it through if he felt the government was going to block or delay it, but they did not elaborate.

Several people have been arrested and others are likely to give evidence to a police inquiry into the hacking allegations, which include reports police may have been paid for information and a company executive may have destroyed evidence. News Corps' British media arm firmly denies any obstruction of justice.

'You wouldn't be human if you weren't totally appalled by the revelations that have come to light, they're just stomach churning and I think everyone feels totally shaken,' Culture Secretary Jeremy Hunt said in a television interview.

Hunt's strong comments, and the approach to the regulators, may have been designed to give the government some political cover ahead of Wednesday's debate, lawyers said, as from a legal standpoint the takeover deal and hacking scandal are not linked.

Both Hunt and Prime Minister David Cameron, from the centre-right Conservatives who lead the coalition government, have been accused by left-leaning Labour of being too close to Murdoch and too slow to act to uncover the full extent of the scandal.

Andy Coulson, a former editor of the News of the World, was until earlier this year Cameron's spokesman, before he was forced to resign over the scandal.

Labour party leader Ed Miliband said on Sunday he would force parliament to vote this week if Cameron did not take steps to halt News Corp's $14-billion bid for the 61 percent of BSkyB that it does not already own.

He said on Monday the government had moved reluctantly. 'They are doing it not because they want to, but because they have been forced to,' he said.  - Reuters