David Cameron has told MPs that "with hindsight" he would not have hired ex-News of the World editor Andy Coulson.
In the closest he has come to an apology, the PM said: "Of course I regret, and I am extremely sorry, about the furore it has caused."
Mr Coulson quit the NoW over phone hacking, saying he knew nothing about it but took ultimate responsibility.
Amid stormy Commons scenes Labour leader Ed Miliband said hiring him was a "catastrophic error of judgement".
And the prime minister came under pressure from Labour MPs to confirm whether he had any conversations about News Corporation's now aborted bid to fully takeover BSkyB with executives from the company such as Rebekah Brooks, Rupert or James Murdoch.
He had returned early from a trip to Africa to make an emergency statement on the phone hacking crisis - the Commons is sitting for an extra day after the prime minister delayed MPs' summer recess so he could address the issue.
In other developments in the phone hacking saga:
Mr Cameron said the public inquiry will be widened to examine broadcasters and social media and named the panel
Speaker John Bercow launches an investigation into the foam pie incident at Rupert Murdoch's committee hearing
The Met Police drafts in 15 extra officers to work on its investigation - taking total force numbers to 60 - citing a "significant increase" in its workload
Downing St and Buckingham Palace deny claims by Labour MP Chris Bryant that royal officials raised concerns about Mr Coulson's appointment
The protester accused of throwing shaving foam at Mr Murdoch is charged with a public order offence.
News Corporation terminates arrangements to pay legal fees of private investigator Glenn Mulcaire "with immediate effect"
Labour MP Nick Raynsford says that, when Mr Coulson was at Downing St, the cabinet secretary was alerted to evidence of illegal phone hacking, covert surveillance and hostile media briefing against a senior government official - the cabinet secretary later denied it.
Downing St confirms that the prime minister received and responded to a letter from Labour MP Tom Watson last October, in which he raised concerns about Mr Coulson
In the Commons, Mr Cameron said that if Mr Coulson - Mr Cameron's former media spokesman - had lied about phone hacking at his time at the News of the World then he should face "severe" criminal charges.
'Protect himself'
He added: "If it turns out I have been lied to that would be a moment for a profound apology, and in that event I can tell you I will not fall short."
And he told MPs that with hindsight "I would not have offered him the job and I expect that he wouldn't have taken it".
But Mr Miliband said Mr Cameron's comments were "not good enough" and said repeated questions about Mr Coulson had been met "with a wall of silence" by Mr Cameron's aides.
"I never had any inappropriate conversations”
"The country has the right to expect that the prime minister would have made every effort to know the facts about Mr Coulson, to protect himself and his office," he said.
"This can't be put down to gross ignorance. It was a deliberate attempt to hide from the facts on Mr Coulson."
Labour MPs continued to press Mr Cameron on Mr Coulson throughout the debate - asking what advice he had received from other figures, including the deputy PM Nick Clegg, and which company had been used to vet the former editor before he was hired.
They also questioned Mr Cameron about his contacts with another former NoW journalist Neil Wallis.
Mr Cameron accused Labour of making a "litany of rather pathetic conspiracy theories to try and win a political game" and also defended his chief of staff Ed Llewellyn, after it was suggested on Tuesday he had failed to pass on information about phone hacking to the PM.
Mr Cameron also faced a barrage of questions from Labour MPs over whether he had broken the ministerial code by discussing Rupert Murdoch's bid to take control of BSkyB with News International executives such as Rebekah Brooks.
To roars of outrage from the Opposition benches, Mr Cameron replied: "I never had any inappropriate conversations".
He insisted he had taken himself out of the decision-making process entirely - and that his Labour predecessors Tony Blair and Gordon Brown had enjoyed a closer relationship with the Murdoch empire than him.
Yes, it is true that the prime minister made some significant announcements broadening the terms of the Leveson inquiry to take in other police forces and broadcasters as well as newspapers.
But the general feeling around Westminster is that a peak was reached on Tuesday and we're not learning much new, despite Mr Cameron facing 138 questions in the House.
Labour, as you'd expect, are pursuing some perceived weaknesses - in particular Mr Cameron's seeming unwillingness to say in simple terms that he never discussed the BSkyB bid during his 26 meetings with News International executives.
They also feel the PM is still vulnerable on the question of Andy Coulson despite some movement from him in saying that, with "20-20 hindsight", he wouldn't have employed him.
On the government benches however, there is genuine anger that Labour is washing its hands of any responsibility, even though the hacking went on under a Labour government and despite Gordon Brown's admission that he'd considered an inquiry but did not pursue it.
MPs are heading to their constituencies for a summer break. The next big episode is likely to be when Lord Leveson starts to examine the pillars of the state in his phone hacking inquiry.
He grew increasingly exasperated as Labour MPs continue to press him on whether he had discussed BSkyB with News International executives - when one Labour MP asked if he had ever mentioned the word in their presence, he sighed heavily and sat back down again without saying a word, to laughter from his own benches.
Several Conservative MPs stood up to attack the previous Labour government's record on dealing with press intrusion, previous No 10 aides Damian McBride and Alastair Campbell and Mr Miliband's own communications director - former News International journalist Tom Baldwin.
It follows weeks of developments in the phone hacking saga which have seen the resignations of two senior Metropolitan Police officers, News Corporation axe the News of the World, withdraw its bid to take over BSkyB and accept the resignations of senior executives Rebekah Brooks and Les Hinton.
Downing Street released emails on Tuesday showing that Mr Cameron's chief of staff Ed Llewellyn had prevented senior police officers briefing the Tory leader on the phone-hacking investigation.
Mr Coulson's former deputy at the News of the World, Neil Wallis, also gave "informal" advice to the Conservative Party ahead of the election, the party has confirmed.
Both Mr Wallis and Mr Coulson have since been arrested and questioned by detectives on the new phone-hacking inquiry launched earlier this year.
Mr Cameron was said to "be in fighting mood" at the 1922 Committee meeting of Conservative backbench MPs on Wednesday, where he was greeted by prolonged banging of desks.
According to a senior source on the committee, no MP asked about Mr Coulson or the hacking scandal - focusing instead on the economy, the crisis in the eurozone and overseas aid.
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