* Disclosure comes day after new edition launched

* Murdoch's UK arm pays 600,000 pounds to Charlotte Church

* Email suggested company knew hacking widespread -lawyer

By Michael Holden

LONDON, Feb 27 (Reuters) - Journalists at Britain's Sun newspaper paid large sums of cash to corrupt public officials, aware the practice was criminal, an inquiry into press ethics heard on Monday, revelations that could prove damaging to Rupert Murdoch's media empire.

The police officer heading three criminal inquires centred on Murdoch's British newspaper arm, News International, said the Sun had operated a "culture ... of illegal payments".

"The current assessment is that it reveals a network of corrupted officials," Deputy Assistant Commissioner Sue Akers told the inquiry.

"There appears to have been a culture at the Sun of illegal payments, and systems have been created to facilitate those payments whilst hiding the identity of officials receiving the money."

The disclosure could damage Murdoch's News Corp if it gives ammunition to the FBI and other American government agencies that have stepped up their hunt for signs of illegality at the U.S.-based company.

A case brought under the Foreign Corrupt Practices Act could impose fines of millions of dollars and criminal charges against individuals.

The hearing was held one day after Murdoch launched a Sunday edition of the Sun in a bid to give the tabloid a boost after almost 10 members of staff were arrested by Akers' team.

The Sunday edition of the Sun replaced the 168-year-old News of the World tabloid which Murdoch closed in July amid public disgust at revelations journalists had been hacking voicemails, including those of a missing girl who was later found murdered.

Akers said her investigation indicated Sun reporters had made multiple payments to police officers and public officials, including some in the military.

One individual had been paid around 80,000 pounds over a number of years while one Sun reporter had been given 150,000 pounds cash to pay his sources, she said.

Reporters were aware what their actions were unlawful, she added.

"That's really by reference to comments being made in staff risking losing their pension or their job, the need for care and the need for cash payments," Akers said.

The three probes are into claims of phone-hacking, the hacking of emails and the bribing of officials for iformation.

ARRESTS

Detectives have made some 40 arrests, with suspects ranging from former News International Chief Executive Rebekah Brooks to Andy Coulson, ex-editor of the News of the World and former media chief for Prime Minister David Cameron, as well as police officers and Ministry of Defence employees.

There are now almost 170 people working on the three inquiries, making the linked investigations one of the biggest ever conducted by London police.

It has had huge repercussions across the British establishment, leading to the resignation of Coulson, two top police officers and several News International executives.

Much of the information was provided to police by the secretive Management and Standards Committee (MSC), set up by Murdoch to examine 300 emails from News International for evidence of criminality.

After examining the stories which the alleged payments had produced, the vast majority seemed to be "salacious gossip" and not revelations of public interest, Akers said.

The phone-hacking saga began in late 2005 leading to the jailing of a reporter from the News of the World and a private detective for illegally accessing the voicemails of royal aides and other high-profile figures.

News International consistently claimed that the journalist was a "rogue reporter" and there was no evidence to suggest phone hacking was endemic.

However, last year it admitted the practice was more widespread and has paid significant sums to victims of hacking.

London High Court on Monday heard that one such victim, singer Charlotte Church, was paid 600,000 pounds in damages by the News of the World publishers in one of the largest settlements so far.

The court also heard 56 out of 61 claims against the paper had now been settled but at least another 194 cases were being considered. A provisional trial date for February next year was set for those not already settled.

Critics say some senior News International figures knew far earlier than they had admitted that more staff were involved but kept quiet to protect the company's reputation.

The inquiry heard that a senior police officer had briefed Brooks in September 2006, disclosing that 1 million pounds had been paid to the private detective who was later jailed and that there were more than 100 potential victims.

That information was circulated more widely within the company in an email from News International's legal chief Tom Crone to Coulson, said Robert Jay, the lawyer to the inquiry.

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