Cameron's former communications chief, Andy Coulson, was arrested on suspicion of corruption and hacking private phones on Friday.
The 43-year-old is a former editor for News of The World. Rupert Murdoch, who owns the 168-year-old tabloid, is shutting it down. The last issue will be printed on Sunday.
Police also arrested Clive Goodman, the former News of the World royal editor who served a jail term in 2007 for hacking into the phones of royal aides. This time the arrest was on suspicion of making illegal payoffs to police for scoops.
The paper has admitted hacking cell phones and voice mail accounts of celebrities, politicians, and others.
But the scandal intensified when the tabloid was accused of hacking the phones of a child murder victim and relatives of fallen soldiers.
In response advertisers pulled their ads en masse. News International killed the paper in hopes of saving its $19 billion deal to take over satellite broadcaster British Sky Broadcasting.
But the British government on Friday signaled the deal would be delayed as a result of the crisis.
"Given the events of recent days, this will take some time," Cameron said.
$1.6 billion was wiped off the value of BSkyB Friday, with shares closing down 7.6 percent in London as investors recoiled at the bad news.
Cameron acknowledged that British politicians and the press had become too close and promised investigations into both the tabloid's actions and future media regulation.
The Associated Press contributed to this story