Rupert Murdoch's £10 billion bid to takeover broadcaster BSkyB has been dramatically abandoned by News International.
The development, which comes as parliament prepared to unite behind a Labour motion condemning the bid as against the public interest, represents a major defeat for the media mogul.
The Commons vote, supported by the Conservatives and Liberal Democrats as well as the opposition, would not have been binding.
But the intensity of political pressure appeared irresistible, prompting this afternoon's decision.
"We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate," News Corp chief operating officer Chase Carey said.
"News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it."
All three party leaders welcomed the news.
"This is a victory for people up and down this country who have been appalled by the revelations of the phone hacking scandal and the failure of News International to take responsibility," Labour leader Ed Miliband said.
"People thought it was beyond belief that Mr Murdoch could continue with his takeover after these revelations.
"It is these people who won this victory. They told Mr Murdoch: 'this far and no further''
"Nobody should exercise power in this country without responsibility."
Mr Murdoch continues to own 37% of shares in BSkyB. Under City rules News International will not be able to make another attempt to acquire 100% of the shares for at least six months.
"They should stop thinking about mergers when they need to sort the situation they've created," David Cameron told the Commons earlier.
The prime minister's spokesperson reiterated those comments after the BSkyB bid was withdrawn, saying that the PM believed "the business should focus on clearing up the mess and getting its own house in order".
Deputy prime minister Nick Clegg said Mr Murdoch had done "the decent and sensible thing".
"Now that the bid has been called off and a proper inquiry set up, we have a once in a generation chance to clean up the murky underworld of the corrupted relationship between the police, politics and the press," he said.
The abandoned takeover bid will not end the phone-hacking scandal, however, as questions continue to be asked over whether Mr Murdoch is a "fit and proper" person to own a media outlet.
"My colleagues and I have been warning for 17 years of the dangers of the growing influence of the Murdochs in Britain," Liberal Democrat deputy leader Simon Hughes commented.
"Three days ago the most popular Murdoch title disappeared - ruined by the excesses of some of its staff. Today the News International bid for BSkyB has been withdrawn.
"At last the sun is setting on Rupert Murdoch's British empire."
In his statement to parliament earlier, Mr Cameron indicated that he was prepared to move decisively against Mr Murdoch if allegations of wrongdoing were confirmed.
"The people involved whether they were directly responsible for the wrongdoing, sanctioned it, or covered it up however high or low they go must not only be brought to justice they must also have no future role in the running of a media company in our country," he said.
The Murdoch media empire faces another difficult decision in the coming hours. It must decide whether News International chief executive Rebekah Brooks will attempt to defy the Commons' culture, media and sport committee over its invitation for her to appear.
If it fails to do so by 17:00 BST the serjeant-at-arms can issue a formal summons. News International has said it will "cooperate fully" but is yet to confirm whether Ms Brooks - or Rupert Murdoch and James Murdoch - will attend next Tuesday's evidence session.
Yesterday News International sought to prop up its share value, which has slumped by nearly 15% in the last nine days, by buying back £3.2 billion of its shares - roughly the amount of money it has lost in shares so far.