* Sources say Sun journalist arrested in police payment probe
* News Corp launches compensation scheme to victims
* Police say 5,800 people targeted by hackers
By Mark Hosenball and Kate Holton
LONDON, Nov 4 A scandal engulfing Rupert Murdoch's News Corp threatened to spread to more than one title on Friday as sources said a journalist at the Sun newspaper had been arrested over allegations of police bribery.
Police investigating events at the News of the World tabloid after a phone hacking scandal said they had arrested a 48-year-old in connection with payments made to police. A spokesman for News Corp's British newspaper arm News International said an employee had been arrested.
Two company sources identified the man as senior Sun reporter Jamie Pyatt, a journalist who covered the 2002 kidnap and murder of British schoolgirl Milly Dowler, a case which played a key part in the hacking scandal this year.
The Sun, Britain's largest circulation daily newspaper, is the sister paper to the 168-year-old weekly News of the World, which News Corp shut down at the height of the storm in July.
News Corp was forced to act after its long-held defence that hacking was carried out by one 'rogue' reporter collapsed, in part over the revelation that it had hacked into the phone of the missing Dowler and deleted her messages, giving her family false hope that she was still alive.
News of the arrest of a Sun journalist will come as a blow to the group, which has consistently argued that the illegal practices of snooping on people's phone messages and paying off the police were restricted to the News of the World.
The scandal has infuriated News Corp minority shareholders, forced the resignations of top British police officers and embarrassed Prime Minister David Cameron who had hired the former editor of the News of the World as his media advisor.
The revelations have also led to a string of police inquiries and civil court cases. The group has agreed to pay out 2 million pounds ($3.2 million) to the Dowler family and Murdoch will give 1 million pounds to charity.
On Friday, a spokesman for police investigating the hacking at the News of the World said they believed the number of people targeted for phone message eavesdropping was almost 5,800, some 2,000 more than originally thought.
Investigations into whether journalists paid police for information stemmed from the original hacking investigation.
The full scale of the problem means News Corp is likely to face a much larger bill for compensation of victims than it had originally anticipated. The group said this week the cost of the News of the World closure would run to $91 million, mainly from employee severance charges.
It declined to clarify what amount had been reserved for future legal cases.
Media consultant and broadcaster Steve Hewlett said it was important to remember that the Sun journalist was accused of paying police and not hacking, as some journalists would argue payments to police could be acceptable in certain cases where there is strong public interest.
"It could be acceptable, notwithstanding the fact that it's a criminal offence," he said.
Pyatt had also broken stories about Prince Harry wearing a Nazi uniform to a fancy dress party and more recently the fact that a 92-year-old woman was denied alcohol because she could not prove she was over the legal age limit.
News of the Sun journalist's arrest put News Corp back in the spotlight at a time when it is trying to move on, making payments to charity and dismissing staff.
News International said on Friday it had launched a compensation scheme with a website as a faster and more cost effective alternative to court litigation with High Court judge Charles Gray acting as an independent adjudicator.
James Murdoch, Rupert Murdoch's son and head of News Corp's Europe and Asia operations, is due to appear next week before the powerful parliamentary committee investigating the scandal.