Alistair Campbell has said New Labour would have been "crazy" not to try and court the Murdoch press in the run up to the 1997 general election, but has rejected the suggestion any sort of deal was done.
Giving evidence to the Leveson inquiry on Monday, Tony Blair's former communications director said he was hired in 1994 in order to promote the party's message.
"Part of my job was to help Tony Blair communicate to the public, and part of that was through the media," he said.
"Murdoch is the single most important media figure ... it would have been foolish on our part not to build some sort of relationship with him."
Campbell said that while Rupert Murdoch is "fundamentally right-wing" he also liked to back winners, which influenced the decision of The Sun to back Labour in 1997.
And he rejected the suggestion that Blair had done a "deal" with Murdoch whereby Labour would pass legislation favoured by News Corporation in return for the support of its papers.
"I was never witness to a discussion where he [Murdoch] said, 'Tony, if you do this and this and this, we'll back you'. It just never happened," Campbell said.
"There were lots of areas where you'd be hard pressed to say the Murdoch were getting a good deal out of the Labour government."
He added: "I don't think on policy anything was ever traded with Rupert Murdoch or with any other media owner."
Campbell also denied that Labour's plans for cross-media ownership rules which restricted ownership of news providers were "quietly dropped" following a visit by Blair to Murdoch in Australia.
"They hadn't been quietly dropped, we changed the policy, we changed the position," Campbell insisted. "Tony Blair wasn't terribly keen on cross media ownership policy we had up until then."
He also told the inquiry that Tessa Jowell had sought assurances from Blair that there were "no implied deals" between government and Murdoch when she accepted the job of culture secretary in 2001.
"She wanted to be sure, as it were, she wasn't going into a policy area where a conclusion had been reached," he said. "Tony Blair was able to give her that assurance."
Campbell was questioned about three telephone conversations which took place between Blair and Murdoch in the run-up to the Iraq war.
Asked why Mr Blair made time for the calls during a frantic period of diplomacy, Campbell pointed out that Murdoch was a "very significant figure in the media landscape".
"What I think was going on is that Rupert Murdoch has placed a call and Blair has taken that call, and Rupert Murdoch is just wanting to have a chat about what is going on," Campbell said.
"Rupert Murdoch, one of the things that makes him different to some of the other media owners, some of whom you saw last week, is that he is a news man. He is interested in what is going on in the world."
Questioned about his time handling the relations between Downing Street and the press, Campbell dismissed as "nonsense" the idea that he bullied journalists who wrote stories he did not like.
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