UPDATE 5-Murdoch limits damage in parliament grilling
* James Murdoch blames ex-editor Myler, ex-legal head Crone
* Reiterates did not see "For Neville" hacking email
* Crone and Myler reject Murdoch's version
* MP Tom Watson compares Murdoch to Mafia boss
LONDON, Nov 10 (Reuters) - James Murdoch, fighting for his career, held his line that he was innocent of covering up phone-hacking at the News of the World tabloid and blamed other former executives in a UK parliamentary hearing on Thursday.
But the 38-year-old News Corp executive and son of media mogul Rupert had no answer during his two-and-a-half-hour grilling to accusations he should have asked more questions, particularly when approving a huge payoff to a hacking victim.
Murdoch accused his former editor and legal chief of misleading him and parliament, after Colin Myler and Tom Crone publicly contradicted his previous testimony to the committee of British MPs investigating the phone-hacking.
"This was the job of the new editor who had come in ... to clean things up, to make me aware of those things," said Murdoch, appearing confident under interrogation by lawmakers even when compared by MP Tom Watson to a Mafia boss.
Observers said Murdoch, who as executive chairman of News Corp's British newspaper arm News International was ultimately responsible for the now-defunct tabloid, acquitted himself well by not damaging his reputation any further.
"There was definitely no knock-out punch delivered," said Ian Whittaker, media analyst at Liberum Capital.
But his performance will have done nothing to win over those with doubts about his ability to run a large company like News Corp. Until recently he had been expected to succeed his father at the head of the media group.
The committee will now draw up a report of its findings, which it expects to publish by Christmas.
"Mr Murdoch, I think, did do his best to give his full account to the committee. Clearly there are contradictions between what he said and others have told us," the committee's chairman, John Whittingdale, told reporters after the hearing.
The News of the World was revealed this year to have run an industrial-scale operation to hack into the phones of murder victims including schoolgirl Milly Dowler as well as celebrities and politicians.
The scandal caused a wave of public anger which ultimately brought about the closure of the tabloid, shook the political establishment and saw the head of the country's largest police force resign.
Prime Minister David Cameron was also damaged by his decision to hire former News of the World editor Andy Coulson as his communications chief in 2007.
Previously, News Corp had maintained the hacking at its tabloid was the work of a lone, "rogue" royal reporter, Clive Goodman, and private detective Glenn Mulcaire.
Both went to jail for the offence in 2007.
In 2008, James Murdoch approved a payoff of about 750,000 pounds ($1.2 million) to hacking victim and soccer boss Gordon Taylor, who had in his possession an email of hacking transcripts appearing to show the hacking went beyond Goodman.
He reiterated to MPs on Thursday he had approved the unusually large payoff only because he was following legal advice, and not because he knew the so-called "for Neville" email could implicate other journalists.
"I was given sufficient information and only sufficient information to authorise the increase of the settlement offered, that Mr Crone and Mr Myler had already eagerly been increasing in order to achieve a settlement even before it had come across my desk," he said.
Opposition Labour Party MP Tom Watson, the toughest member of the committee, asked Murdoch: "Do you think Mr Crone misled us?" Murdoch answered: "It follows that I do, yes."
Crone later issued a statement to media rebutting Murdoch's version of events. "The simple truth is he was told by us in 2008 about the damning email and what it meant in terms of wider News of the World involvement," he said.
Myler likewise rejected Murdoch's account. "My evidence to the select committee has been entirely accurate and consistent," he said in a statement.
Neville Thurlbeck, the former News of the World chief reporter believed to be the "Neville" in the disputed email, said he had been compiling his own hacking dossier and accused the paper's executives of trying to keep a lid on what had been happening and not News International bosses.
"If Mr Murdoch, James Murdoch, had been aware of my dossier, if he had been aware of what I was volunteering over two years to the News of the World he would have been far more prepared to face this crisis," he told BBC TV.
"I think when he was giving his evidence today it was based on ignorance ... of what had been going on on the shop floor."
Last week, a journalist working for sister newspaper The Sun was arrested on suspicion of bribing police. When asked, Murdoch said he could not rule out shutting down the daily tabloid, should widespread malpractice be discovered there.
Any notion that News International was a reformed organisation was undermined this week by its admission that the News of the World had put lawyers defending hacking victims under surveillance as recently as this year.
James Murdoch also said that members of the parliamentary committee questioning him had been put under surveillance, for which he apologised "unreservedly".
Mark Lewis, who is representing victims including the Dowler family, told Reuters: "It's useful that I have an apology for something that shouldn't have happened."
"But we need to know what did happen, who was doing it, why were they doing it, the full extent and why they were bothering to trail my family."
Murdoch survived a massive protest vote against his membership of the board of News Corp last month, and faces a shareholder vote on his chairmanship of British satellite broadcaster BSkyB at the end of November.
James Murdoch adopted a more contrite tone than on his previous appearance before the committee together with his father Rupert in July.
"It is a matter of great regret that things went wrong at the News of the World in 2006. The company didn't come to grips with those issues fast enough," he said.
The sometimes testy Murdoch also failed to rise to the bait when Watson compared him to a Mafia boss, responding mildly: "Mr Watson, please, I think that's inappropriate."
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