By Ian Dunt Follow @IanDunt
Neil Wallis informally advised Andy Coulson during the general election campaign, the Conservative party has admitted.
The development significantly worsens the phone-hacking crisis and even raises questions about whether David Cameron can survive the scandal.
It comes amid a feverish day in Westminster, after Rupert Murdoch's testimony to MPs was interrupted by an attack from a protestor.
"We have double checked our records and are able to confirm that neither Neil Wallis nor his company has ever been contracted by the Conservative party, nor has the Conservative party made payments to either of them," Tory head office said in a statement.
"It has been drawn to our attention that he may have provided Andy Coulson with some informal advice on a voluntary basis before the election. We are currently finding out the exact nature of any advice.
"We can confirm that apart from Andy Coulson, neither David Cameron nor any senior member of the campaign team were aware of this until this week."
Mr Wallis has already triggered two resignations at the top of the British police force. He was a former deputy editor at the News of the World before being re-hired by the Met to provide communications services, a potential conflict of interest which prompted intense scrutiny over the weekend.
In his resignation statement Met commissioner Sir Paul Stephenson said he could not bring the relationship to the attention of the prime minister or home secretary due to Mr Cameron's relationship with Mr Coulson.
Appearing at the home affairs select committee today, assistant commissioner John Yates said it was Mr Cameron's chief of staff, Ed Llewellyn, who prevented the information reaching the prime minister.
The development suggests Mr Wallis, who was arrested by police over allegations of phone-hacking last week, played a role in getting Mr Cameron into Downing Street.
"Dramatic day," Ed Miliband tweeted. "Now David Cameron has a duty to uphold dignity of the PM's office by answering fully the questions he faces about this scandal."
The development will encourage those questioning the judgement of the prime minister in first employing Mr Coulson and then moving him into Downing Street. It also raises concerns about Mr Coulson's behaviour while working for Mr Cameron.