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The Metropolitan Police force was plunged into further crisis over its handling of the phone-hacking scandal yesterday when it emerged that the News of the World's former deputy editor was hired by Scotland Yard last year, heaping pressure on its commissioner, Sir Paul Stephenson.

Neil Wallis, who was arrested yesterday for his alleged role in the scandal, was employed by the Met as a public relations consultant for 12 months, at a time when the force was facing growing criticism over its failure properly to investigate criminality at the Sunday paper. The disclosure that Mr Wallis was paid 24,000 by the Met to provide "strategic communication advice" at the heart of the Yard between October 2009 and September 2010 came hours after the former executive was arrested on suspicion of conspiring to intercept voicemails.

The Yard has faced allegations that it ignored evidence of multiple victims of voicemail eavesdropping and suspected involvement of NOTW journalists while conducting a close relationship with Rupert Murdoch's News International. Officers and executives had a series of dinners together and Andy Hayman, the officer in charge of the original hacking investigation, was appointed a columnist for The Times.

Mr Wallis, 60, left the NOTW in August 2009 as its executive editor after 18 years with News International.

His contract with the Yard allowed him access to the highest levels of the Met, advising the Commissioner's Office, the Directorate of Public Affairs and the Specialist Operations Command, where he worked closely with Assistant Commissioner John Yates. He worked for two days a month at Scotland Yard, earning 1,000 a day.

Members of the Metropolitan Police Authority (MPA), who were only given details of Mr Wallis's Yard contract six hours after his arrest, called the decision to employ Mr Wallis "unbelievable". Dee Doocey, the Liberal Democrats' London policing spokeswoman, said: "How could anyone in the Met think that it was right to pay for media advice from a man whose last job was at the helm of an organisation that oversaw such serious criminal activity? This is a serious error of judgement at the very top of the Met."

Sir Paul yesterday told the MPA that he was "very satisfied with my own integrity" after he was asked whether it had been appropriate for him to have eight dinners and meetings with Mr Wallis, including one meal at the height of the original Yard investigation into phone hacking in September 2006. The Yard has previously insisted that social encounters with the NOTW and other senior NI editors are a routine part of police work and similar meetings take place with other newspaper groups.

Mr Wallis, who worked as deputy to NOTW editor Andy Coulson before the former Downing Street director of communications resigned from the paper over the hacking affair in 2007, won the Yard contract through Chamy Media, a now defunct company of which he was the sole employee.

In a statement, the Met said: "Chamy Media, owned by Neil Wallis... was appointed to provide strategic communication advice and support to the MPS, including advice on speech-writing and PR activity. In line with procurement procedures, three relevant companies were invited to provide costings for this service on the basis of two days per month. Chamy Media were appointed as they were significantly cheaper than the others. The contract ran from October 2009 until September 2010, when it was terminated by mutual consent."

Mr Yates, who decided in July 2009 not to reopen the hacking inquiry – a judgement which he this week told MPs had been "poor" – described Mr Wallis as someone he had known for "years" when he appeared before the Commons Media Select Committee in March. He appeared to struggle to recall that he had met Mr Wallis for dinner as recently as January this year.

Mr Wallis, who has more recently been working as managing director of the entertainment PR agency the Outside Organisation, became the ninth person to be arrested in relation to phone hacking when officers from Operation Weeting, the Yard's ongoing inquiry into the scandal, arrived at his 1930s semi in Chiswick, west London, at 6.30am. As detectives conducted a search of his 700,000 home, he was held for 10 hours at a nearby police station on suspicion of conspiracy to intercept voicemails before being released on police bail.

Meanwhile, NI has been preparing to take out full-page adverts apologising for the hacking scandal. It was reported that it will launch The Sun on Sunday – its replacement for the defunct NOTW – on 7 August.