David Cameron knew Jeremy Hunt was supportive of News Corporation's desire to takeover BSkyB when he appointed him to oversee the bid, the Leveson inquiry heard.
Hunt drafted a letter to Cameron in November 2010 warning the prime minister that blocking News Corporation's bid would cause the UK media sector to "suffer for years".
In his evidence to the Leveson inquiry on Thursday, Hunt's former special adviser Adam Smith revealed that Hunt had written to the prime minister while responsibility for adjudicating the bid still rested with business secretary Vince Cable.
The letter read: "James Murdoch is pretty furious at Vince's referral to Ofcom. He doesn't think he will get a fair hearing from Ofcom. I am privately concerned about this because News Corp are very litigious and we could end up in the wrong place in terms of media policy.
"Essentially what James Murdoch wants to do is to repeat what his father did with the move to Wapping and create the world's first multiplatform media operator available from paper to web to TV to iPhone to iPad.
"The UK has the chance to lead the way on this as we did in the 80s with the Wapping move but if we block it our media sector will suffer for years."
"In the end I am sure sensible controls can be put into any merger to ensure there is plurality but I think it would be totally wrong to cave into the Mark Thompson/Channel 4/Guardian line that this represents a substantial change of control given that we all know Sky is controlled by News Corp now anyway."
Cable was subsequently stripped of responsibility for taking the decision after he was secretly filmed expressing opposition to Murdoch - and therefore deemed not to be impartial.
Cameron then handed responsibility to culture secretary Hunt.
Smith told the Leveson inquiry that he did not believe the culture secretary was "particularly" close to the Murdoch family.
"He didnt really have that much fo a relationship with either of the Murdochs or the chief executive of News International [Rebekah Brooks] he tended to deal, as I think inquiry saw with Mr Michel," he said.
"I wouldnt have said he was particuarly close to News Corporation."
Downing Street said in a statement that the memo sent by Culture Secretary Jeremy Hunt to David Cameron regarding the BSkyB bid was "entirely consistent with his public statements on the BSkyB bid prior to taking on the quasi-judicial role".
"It also makes clear that 'it would be totally wrong for the Government to get involved in a competition issue which has to be decided at arm's length,'" the statement continues.
"The PM has made clear throughout that he recused himself from decisions relating to BSkyB and did not seek to influence the process in any way."
A source close to Mr Hunt also said there was nothing in the memo that suggested he should not have been given the quasi-judicial function when it was stripped from Mr Cable in December 2010.
"Jeremy is clear in the memo, as he was throughout the bid process, that it should only go ahead if it addressed the plurality concerns," said the source.
Earlier in the day the inquiry heard from News Corp's chief lobbyist Fred Michel who addressed the over one thousand messages that passed between Hunt's office and News Corporation in the course of one year.
Smith described his role working for Hunt as a "buffer" between the secretary of state and outside organisations who wanted to contact him.
"A lot of outside organisations want to meet with secretaries of state, they dont have the time to meet with everybody ... so I would often have contact with them to see if what they had to say was of interest."
Smith quit his job working for the culture secretary after admitting he had "inappropriate" contact with News Corporation during the time Hunt was charged with adjudicating on the company's bid for BSkyB.
Labour leader Ed Miliband has said he believes Smith is acting as a fall guy for the culture secretary.
"The idea that his special adviser, Adam Smith was acting as some lone wolf callusing with News Corporation, helping them on their bid for BSkyB, providing information to them that was going to be disclosed to government, giving them information to them about opposition to the bid was saying, without any knowledge of the Secretary of State, frankly beggars belief," he said in April.
Prime Minister David Cameron
Deputy Prime Minister Nick Clegg
Chancellor George Osborne
Foreign Secretary William Hague
Health Secretary Jeremy Hunt
After a stressful year in the DCMS, Jeremy Hunt moves from Culture to Health, replacing Andrew Lansley.
Home Secretary Theresa May
Cabinet Office Minister Francis Maude
Chief Secretary To The Treasury Danny Alexander
Minister without Portfolio, Ken Clarke
Having stepped down from the Justice Department, Clarke is supposedly staying in Government rather than hanging up his boots. Chris Grayling will replace him as Justice Secretary.
Justice Secretary Chris Grayling
Chris Grayling, formerly in the Department of Work and Pensions, will step up to hold the job vacated by Ken Clarke.
Culture Secretary Maria Miller
Maria Miller has taken up the DCMS job after Jeremy Hunt moved to the Department of Health. Miller is one of the few new faces in the cabinet.
Defence Secretary Philip Hammond
Communities Secretary Eric Pickles
Education Secretary Michael Gove
Minister for Internation Development, Justine Greening
Greening, who has been subject to plenty of rumours since her fallout over a potential third Heathrow runway. Greening was in No 10 for over an hour on Tuesday, presumably arguing her case and battling to stay in the cabinet. She will now take over Andrew Mitchell's spot at DfID.
Transport Secretary Patrick McLoughlin
McLoughlin, who has spent the past two years handling backbench rebels as Chief Whip, moves to the DfT, taking over from under-pressure Justine Greening. Greening has yet to be moved.
Energy Secretary Ed Davey
Attorney General Dominic Grieve
Cabinet Office Minister Oliver Letwin
Warsi, one of the earlest victims of the reshuffle, has been ousted as party co-chairman and is to be replaced by Grant Shapps. Warsi instead moves to to the Foreign Office as a junior minister, while also working as faith and communities minister.
Party Co-Chairman Grant Shapps
Shapps, who was the housing minister, is bumped up to party chairman, taking over from the demoted Sayeeda Warsi.
Environment Secretary Owen Paterson
Spelman leaves her post, to be replaced by the former Northern Ireland secretary Owen Paterson.
Work And Pensions Secretary Iain Duncan Smith
Leader of the House Andrew Lansley
Despite recently setting in motion huge overhauls to the NHS, Lansley has been moved to fill Sir George Young's spot as Leader of the House. Jeremy Hunt will succeed him in the Department of Health.
Business Secretary Vince Cable
Northern Ireland Secretary Theresa Villiers
Theresa Villiers, who gave nothing away as she approached Parliament with a wide smile on her face on Tuesday, replaces Owen Paterson. Paterson has moved to Defra.
Welsh Secretary David Jones
Cheryl Gillan was one name always likely to be taken off the list, and she is replaced by David Jones, who served beneath her as a Minister for Wales.
Scottish Secretary Michael Moore
Chief Whip Andrew Mitchell
Andrew Mitchell has moved moved from the Department for International Development to the role of Chief Whip, replacing Patrick McLoughlin.
Lords Leader Lord Strathclyde