* Disclosure comes day after new edition launched

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

* Email suggests 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 headed by senior judge, Justice Brian Leveson.

"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, if successful, bring fines of millions of dollars and criminal charges against individuals.

The inquiry is also about to begin examining allegations that police for years neglected to pursue suspicions of malpractice at News International.

It heard on Monday that a senior police officer had told the company's then-head, Rebekah Brooks, in 2006 that police believed 1 million pounds had been paid to a private detective who worked for Murdoch's News of the World and was later jailed, and that there could be over 100 victims of phone hacking.

A day earlier, Murdoch launched a Sunday edition of the Sun in a bid to give the tabloid a boost after several senior staff were arrested by Akers' team.

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

"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," Murdoch said in a statement.

"That process is well under way. The practises Sue Akers described at the Leveson Inquiry are ones of the past, and no longer exist at The Sun. We have already emerged a stronger company."

He said the first Sunday Sun had sold 3.26 million copies, about half a million more than the News of the World averaged.

Akers said her investigation indicated that 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 in cash to pay his sources, she said.

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

"That's really by reference to comments being made in (relation to) 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 information.

ARRESTS

Detectives have made some 40 arrests, with suspects ranging from 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 resignations of Coulson from his government post, of two top police officers and of several News International executives.

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

An examination of the stories that the alleged payments produced indicated that the vast majority were "salacious gossip", not revelations of public interest, Akers said.

The phone-hacking saga began in late 2005, and in 2007 a reporter from the News of the World and the private detective, Glenn Mulcaire, were jailed for illegally accessing the voicemails of royal aides and other high-profile figures.

News International consistently asserted 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 had been more widespread, and it has since paid significant sums to victims.

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

The court also heard that 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 was set for February next year for those not already settled.

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