Investigators for London's Metropolitan Police Service had evidence in 2006 that "hundreds" of victims had been targeted for possible phone hacking by the News of the World, a former police commander said.

But officers had other priorities and insufficient resources to pursue the matter as thoroughly as they could have, a lawyer for the inquiry said.

The former police commander, Brian Paddick, also said that when officers in August 2006 visited News of the World offices in connection with the arrests of a journalist and private investigator for illegal phone hacking, a senior editor at the paper and three lawyers "obstructed" them. As a result, Paddick said, initial police searches were limited.

Paddick's allegations were made in a written statement he submitted to an inquiry chaired by Lord Justice Brian Leveson which Britain's coalition government set up to investigate British reporting practices and dealings between media and police, politicians and other public officials.

Committees of Britain's House of Commons are conducting similar inquiries. London's police service also set up teams to investigate three specific classes of potentially illegal journalistic activity: phone hacking, computer hacking and questionable payments to public officials.

On Monday Murdoch responded to the inquiry testimony, saying, in a statement: "As I've made very clear, we have vowed to do everything we can to get to the bottom of prior wrongdoings in order to set us on the right path for the future. That process is well under way."

According to Paddick's statement, evidence made available to hacking victims shows that by August 10, 2006, officers from London's Metropolitan Police, also known as Scotland Yard, had seized papers from private detective Glenn Mulcaire relating to "hundreds of individuals, including Royals, MPs, sports stars, military , police, celebrities and journalists."

Paddick said that within six days of the arrests of private detective Mulcaire and Clive Goodman, chief royal reporter for the News of the World, the police had complied a printed list of 418 suspected phone hacking victims based on documents seized from Mulcaire.

According to Paddick, evidence turned over to hacking victims shows that police decided in 2006 to "warn all these victims that they had been targeted by Mulcaire," who later pleaded guilty to phone hacking charges and was jailed.

But Paddick said that "only a tiny fraction" of the known victims were given early notice of hacking evidence. He said that "800 people at least" were "kept in the dark," and some were "actively misled" by statements made by police in 2009. He said he did not know why police did not inform more victims.

Paddick said that on the day that Goodman and Mulcaire were arrested and various locations were searched, the only part of the News of the World office to be searched was Goodman's desk.

Due to a British law designed to protect journalists' sources, police decided they would limit their initial search to the reporter's desk and to the company's accounting department, which might have had evidence of the company's financial dealings with the private investigator.

However, when they arrived at the newspaper, Paddick said, police were met by two in-house lawyers for Murdoch's publishing company, an outside lawyer and the News of the World's Managing Editor.

This led to a "tense stand off", according to evidence Paddick says he has seen, with police eventually abandoning their plan to search the accounting department and leaving Goodman's computer and "safe" in the hands of company lawyers.

For years after the initial arrests of Mulcaire and Goodman, public spokespeople for the News of the World and Murdoch's British publishing interests said phone hacking had been limited to a lone "rogue reporter."

Last year, however, the company and police both acknowledged abusive practices were more widespread and the police set up their three inquiries, involving more than 100 officers, which have now produced more than 30 arrests, though no criminal charges.

At the opening of a hearing on Monday which touched off a phase of the Leveson inquiry which is supposed to focus on dealings between media and police, Robert Jay, chief counsel to the inquiry, said: "The relationship between the Police and the media, and News International in particular, was at best inappropriately close and if not actually corrupt, very close to it.

"Furthermore, the nature of this relationship may explain why the Police did not properly investigate phone-hacking in 2006 and subsequently in 2009 and 2010, preferring to finesse the issue on those later occasions by less than frank public statements," Jay added.

Jay also read out to the inquiry extracts of a September 2006 email, marked strictly private and confidential, from News of the World lawyer Tom Crone to the paper's then editor, Andy Coulson. The message recounted information which he said police officers had "relayed" to Rebekah Brooks, then editor of The Sun daily and later CEO of Murdoch's London print operations, about the progress of Scotland Yard's phone hacking inquiry.

"In relation to Glenn Mulcaire the raids on his properties produce numerous voice records of verbatim notes of his accesses to voicemails. From these they have a list of 100 to 110 victims," the email said, according to Jay.

It added: "It terms of the News of the World ... they suggested they are not widening the case to include other News of the World people but would do so if they got direct evidence News of the World journos directly accessing voicemails."

After leaving the News of the World editorship, Coulson went on to be senior communications advisor to Britain's Conservative opposition leader, and later Prime Minister, David Cameron.

Coulson resigned as Cameron's advisor last year after the phone hacking scandal intensified. He was later arrested but has not been charged.

Critics of the current array of phone hacking inquiries have said the main investigating parties - the Leveson inquiry, the police and News Corporation's Management and Standards Committee - have become overzealous as they try to compensate for their initial slowness in investigating hacking allegations.

• A Permanent Economic Emergency