Growing scrutiny increases of News International, the parent company of the News of the World [EPA]

Families of British soldiers who died in combat are angry as fresh allegations suggest that the News of the World may have hacked into the mobile phones of bereaved military familes.

The Royal British Legion, which works with war veterans, has cut ties with the Sunday newspaper in protest, signalling how far the scandal is affecting the mass-readership publication.

Calls for a public inquiry have been intensified after reports by the Daily Telegraph, a UK newspaper, alleged phones owned by relatives of dead UK soldiers were hacked by the News of the World.

The newspaper said phone numbers of relatives of dead soldiersl in Iraq and Afghanistan were found in the files of Glenn Mulcaire, a private investigator working for the News of the World.

The paper's owner, News International, said it would be "appalled and horrified" if the reports turned out to be true.

The compnay said it was willing to work with the Ministry of Defence to investigate the claims made by the Daily Telegraph.

The Royal British Legion said it could no longer campaign with the News of the World on behalf of the families of soldiers "while it stands accused of preying on these same families in the lowest depths of their misery".

Its statement added: "The hacking allegations have shocked us to the core."

Already major companies - like the British supermarket Sainsbury's and the car maker Ford - have suspended their advertising deals with the News of the World.

The long-running saga took on dramatic new proportions this week with David Cameron, the British prime minister, promising a full inquiry into the phone hacking scandal.

The events of the past few days are also threatening to delay a planned multi-billion-dollar takeover by Rupert Murdoch's News Corp of news and entertainment broadcaster BSkyB.

The allegations have raised fresh questions about the power of Murdoch, the owner of News International, over the British press, politicians and the police.

"We have let one man have too far great a sway over our national life," said the British Labour Party MP, Chris Bryant, who secured an emergency debate in parliament on Wednesday to ask the government to call for a public enquiry.

"No other country would allow one man to garner four national newspapers, become the second-largest broadcaster and hold monopoly on film rights and first-view movies," he said.

The government is considering delaying their decision on whether to allow Murdoch's News Corp to buy out the 61 per cent of pay-TV company BSkyB that it does not already own, after receiving over 100,000 complaints from members of the public.

The News of the World is already under scrutiny as journalists and private investigators working for it are alleged to have accessed the voicemail messages of crime victims, including Milly Dowler, a 13-year-old girl later found murdered.

Cameron has described the newspaper's practices as "disgusting" and is consulting British MPs from all political parties about the nature of the public inquiry to be conducted.