Cable clings on after Murdoch gaffe

David Cameron condemned the comments as "totally unacceptable and inappropriate" and stripped Mr Cable of any say in deciding whether the bid by Mr Murdoch's News Corporation to take control of BSkyB should be referred to the Competition Commission.

He also cut down Mr Cable's empire by handing responsibility for media regulation and competition issues to the Tory Culture, Media and Sport Secretary Jeremy Hunt.

But the Prime Minister stopped short of sacking an embarrassed Mr Cable, the second highest profile Liberal Democrat in the Government, who was also heard claiming he could bring down the coalition by quitting if "pushed too far" by the Tories and criticising some of the coalition's reforms as a Maoist Revolution.

A Downing Street spokesman said: "Following comments made by Vince Cable to the Daily Telegraph, the Prime Minister has decided that he will play no further part in the decision over News Corporation's proposed takeover of BSkyB.

"In addition, all responsibility for competition and policy issues relating to media, broadcasting, digital and telecoms sectors will be transferred immediately to the Secretary of State for Culture, Media and Sport.

"This includes full responsibility for (regulator] Ofcom's activities in these areas. The Prime Minister is clear that Mr Cable's comments were totally unacceptable and inappropriate."

York-born Mr Cable's comments sent shocks through the coalition as Parliament broke up for the Christmas recess, not least because the Conservatives benefited from Mr Murdoch's backing at the general election.

The Minister was already damaged by the first extracts of the secret recording yesterday morning, but Mr Cameron and his Deputy Nick Clegg, the Lib Dem leader, used a joint Number Ten press conference to play down those remarks and praise his role in the Government where he is seen as crucial in keeping left-leaning Lib Dems on board.

Moments after the press conference finished, details of his comments on Mr Murdoch – which had not been used by the Daily Telegraph – emerged.

In the recording – made by undercover journalists posing as constituents – Mr Cable is heard saying: "I have declared war on Mr Murdoch, I think I'll win."

He goes on to say: "His (Mr Murdoch's] whole empire is now under attack... So there are things like that we do in government, that we can't do... all we can do in opposition is protest."

The comments were explosive because Mr Cable was due to receive a report from media regulator Ofcom by the end of the year, at which point he would have to decide whether to refer the deal to the Competition Commission. If it decided to probe, Mr Cable would have had the final decision on whether the deal should be allowed, but Mr Hunt will now have that task.

Shipley MP Philip Davies, a member of the Commons culture, media and sport select committee, described the comments as a "quite extraordinary outburst" and Labour demanded he be removed from having responsibility for ruling on the Murdoch deal.

The incident raised fresh speculation over the possibility of a cabinet return for Lib Dem favourite David Laws if he is cleared by a parliamentary investigation into expenses claims which forced him to quit as Chief Secretary to the Treasury.