Lord Chancellor, Lord Irvine, has called for a full report from trial judge Mr Justice Butterfield, on allegations of payment to a prosecution witness.

The Lord Chancellor has said he regards payments to witnesses as generally objectionable, and particularly so where the amount of the payment is conditional upon a particular outcome of the trial.

"Payments to witnesses, or potential witnesses, by the media run a real risk of encouraging them to exaggerate their evidence to make it more newsworthy, or to withhold relevant evidence from the court and make it available as an exclusive to a newspaper," he said.

"If the existence of a media contract emerges in court, juries may wonder if the witness's evidence has been affected by the contract. This may not be the case, but suspicion that it is could be enough to cause a miscarriage of justice."

Investigation welcomed

And immediately after the not guilty verdict was delivered at Bristol Crown Court the press watchdog announced it would look into the deal, investigating whether it was a breach of its Code of Practice.

During the trial it emerged that the paper had paid the woman �10,000 for the story which formed the basis of the allegations against the singer.

The court was told a further �25,000 was to be paid if the glam rock star was convicted.

The News of the World said on Friday it welcomed the investigation and denied it had breached the PCC code.

It said there had been no criminal proceedings when it entered into an agreement with the woman and could not have foreseen the "subsequent events".

In a statement the newspaper said: "The News of the World signed a contract with the witness after the arrest of Gary Glitter in connection with computer pornography in 1997.

'Three tests'

"At that time, there were no proceedings in existence in which the woman was involved in any way whatsoever."

Lord Wakeham, the PCC chairman, said: "There are three tests in the code of practice itself relating to witness payments.

"Was payment in the public interest? Did payment influence the evidence of any witness? And was payment disclosed to the court?

"It is these tests the PCC will be applying in investigating this matter."

He told BBC Radio 4's PM programme: "This is only the fifth case in the last 40 years and it is certainly the first case for four years so it doesn't happen very often.

"If it does happen and it does seriously affect justice than I would be in favour of tightening up the law.