The editor of the Sun yesterday admitted paying police officers for information.

Rebekah Wade, giving evidence to a committee of MPs, also said journalists were entitled to use bugging devices and other covert methods if there was a strong public interest in the story under investigation.

It was the first time that the editor of a tabloid newspaper has publicly admitted using such techniques, and raised questions about journalistic standards at a time when press self-regulation is under close scrutiny.

Such is the sensitivity surrounding the issue that News International, which publishes the Sun and the News of the World, later issued a statement that contradicted Ms Wade's evidence to the Commons select committee for culture, media and sport, which is preparing a report on media intrusion.

Ms Wade made her admission in response to a question from Chris Bryant, the Labour MP for Rhondda. "We have paid the police for information in the past," she said. The MP asked if it would happen in the future; Andy Coulson, editor of the News of the World, interjected and said: "We have always operated within the code and within the law."

Mr Bryant said he believed it was illegal for police to be paid for information. Mr Coulson replied: "As I said, we have always operated within the code and within the law."

After the hearing, Alison Clark, the director of corporate affairs at News International, called reporters to clarify Ms Wade's evidence. She said: "It is not company practice to pay police for information."

The relationship between the media and the police officers has long been the subject of controversy. A Metropolitan police anti-corruption investigation in 1999 revealed that a detective agency run by former officers was acting as an intermediary between the police and the tabloids.

Mr Bryant said later: "If newspapers are suborning police officers, encouraging them to think that there is money to be made from selling information, that can only be bad news for the criminal justice system."

Earlier, Mr Coulson told the committee that St James's Palace had reneged on an agreement to provide photo opportunities with Prince William while he was at university. On Sunday, the News of the World became the first British newspaper to use paparazzi pictures of the prince since the former PCC chairman Lord Wakeham negotiated a "gentleman's agreement" that would prevent such photographs until he finished his full-time education.

Mr Coulson said: "An agreement has to be two-way. Since the agreement there has been very little in the way of material from the palace. The spirit of the agreement was that on a regular basis we would have material."

Piers Morgan, editor of the Daily Mirror, described princes William and Harry as "a huge commercial property". The Guardian editor Alan Rusbridger later told the hearing it was "an odd way to describe them".

St James's Palace protested about the pictures, but has not made a complaint to the PCC. Mr Coulson said the pictures had not broken the PCC code because they were taken in public.

The four editors who gave evidence to the committee said they supported self-regulation. The tabloid editors said it worked well - Ms Wade said it was a "perfect" system - but Mr Rusbridger advocated a number of improvements. Appointments could be advertised, ex-editors could serve instead of current editors, and an external ombudsman could mediate in disputes about matters of fact. At the moment, the PCC cannot rule when there is a difference of opinion on factual issues.

While he opposed legislation on the issue, Mr Rusbridger warned that such a privacy law was evolving through individual court rulings. "It is very complacent to think that there is any kind of settled state of the law on privacy at the moment," he told the MPs.

"I think freedom of speech is such a fantastic cornerstone of our democracy, if we're going to get any laws that inhibit freedom of speech it's infinitely better that that's done in parliament than on the hoof by judges," he said.

The PCC should be made "utterly credible" to prevent celebrities from resorting to the courts, and criticised the "bunker mentality" of some newspaper editors. "It is a mistake for the industry to be complacent or to imagine that the clock can be stopped."

Mr Morgan said the PCC had made a vast improvement to standards of journalism from the "pretty lawless" state that had existed before. "I have worked in Fleet Street for 15 years. I have never known standards to be higher than they are today particularly in relation to how we deal with ordinary people," he said.

He expressed concern for ordinary people who are caught up in stories: "We're under no illusions as an industry that when the pack descends it can be quite an ordeal."

But he contrasted the responsible attitude to "ordinary" people with a cynical disdain for public figures who crave the spotlight. "There are a lot of greedy, grasping celebrities out there," he said.

Mr Morgan also pointed to a rise in the number of people who attempt to gain attention by appearing on television: "Members of the public invade their own privacy more than the press do."