Andy Coulson was cleared for work at No 10 Downing Street last year after an investigator who had also done work for News International (NI) carried out his vetting, the IoS can reveal.
Mr Coulson, David Cameron's media chief, who resigned in January as the phone-hacking scandal developed, was scrutinised by an experienced investigator with strong links to both the Security Services and to the newspaper group that owned the News of the World, which Mr Coulson had previously edited.
The revelation is certain to renew controversy about Mr Cameron's 2007 decision to appoint Mr Coulson months after the former journalist's resignation as editor of the paper when two men were sent to prison for phone hacking.
The vetting process, which took place around the time of last year's election, gave Mr Coulson the green light to work alongside the Prime Minister in Downing Street and to see certain secret documents.
Last week, a former tabloid journalist and author, Wensley Clarkson, alleged on Newsnight that the investigator in question – who is known to Mr Clarkson – "would have used phone-hacking in the past" as one of his investigative tools.
Now the IoS has learnt, independently of Mr Clarkson, that the person had done work for NI, a conflict of interest of which the PM is aware and knowledge of which is likely to cause embarrassment in Downing Street.
Last night, a No 10 spokesman said he had spoken to "several top security people" and issued a categorical denial that the work had been "farmed out" to a private investigator, but left open the possibility that someone working for the Security Services had done work for News International.
"It is pretty ironic, given what has happened recently," said Mr Clarkson last night. "For one thing, it calls into question the efficiency of the vetting procedure and, for another, it makes you wonder why the Security Services are not doing this stuff themselves from their own resources. But they're not likely to admit it, are they? I know the way the vetting world works. They just never admit things like this. I'm not in the least surprised to hear that Coulson would be vetted by a private individual, but I suspect most people assume the Security Services do their own donkey work, although they, like everyone else, are suffering from the current splurge of cuts."
Questions have been raised as to why Mr Coulson was not submitted for "Developed Vetting", the highest form of clearance, as soon as he started working in Downing Street.
There was speculation this was the result of royal or Civil Service pressure, or that something might be unearthed that would prevent him being awarded clearance.
Downing Street has said that his resignation from the News of the World (NOTW) had no bearing on any decision about his vetting status.
It was reported last week that senior officials working with Andy Coulson believed he did have the highest security clearance, raising questions over whether he was inadvertently granted access to the most sensitive information.
Mr Coulson underwent a total of three vetting procedures during his time working for David Cameron, yet it seems none uncovered serious concerns about the extent of phone hacking during his time as editor of NOTW (2003-07).
At the time of his initial appointment in July 2007 to work with Mr Cameron in opposition, Mr Coulson was given a low form of clearance, which was reportedly handled by a branch of Control Risks, a private security company with good connections to the Conservative Party.
Downing Street has declined to confirm that the company carried out the search, as does the company, now known as Sterling Infosystems. But a security expert last night questioned the wisdom of Mr Coulson being employed, even in opposition, if that was the case – on the basis of the sort of search that this firm carries out.
Ambrose Carey, 49, who owns and runs an investigations company Alaco, said: "Control Risks Screening was the company you would call if you wanted a standard background check. There is nothing wrong with it, but it is absolutely entry level. It's what multinational companies do as a matter of routine on everyone from the receptionist upwards. They are good and respected, but the kind of investigation they do is the most basic. They'll check degrees and qualifications, essentially just box-ticking stuff.
"I would be amazed if that was the only check the Tories did on someone of Andy Coulson's seniority. A thorough 'due diligence' would require bespoke investigation – canvassing as many people from the man's past to get as full a picture as possible.
Background screening typically costs a few hundred pounds. But a full 'due diligence' report would typically cost a few thousand."
The final stage, unusually for someone of Mr Coulson's closeness to the Prime Minister, did not begin until six months after the election. The Cabinet Secretary, Sir Gus O'Donnell, has said that it was felt that Mr Coulson's security clearance level should be upgraded following a counterterrorism incident at East Midlands airport last October.
Sir Gus has warned about the danger of misunderstanding "the purpose of security vetting, which is about access to information not suitability for a job". In Mr Coulson's case, the Developed Vetting (DV) process, which Sir Gus said can take up to six months, was cut short by the media chief's resignation in January.
The Security Services are in charge of DV, which is regarded with extreme seriousness. Having DV clearance would have enabled Mr Coulson to be shown the most secret of government documents.
Downing Street has said the ongoing vetting process had nothing to do with Mr Coulson's eventual resignation, and Mr Coulson denies having known that unlawful phone hacking was going on during his editorship of NOTW.
It was reported yesterday that Mr Coulson's predecessor as editor of the News of the World, Rebekah Brooks, who resigned as chief executive of News International last month, was still on the payroll, having been told by Rupert Murdoch to go travelling for a year until the phone-hacking scandal dies down.
A News International spokesman said last night: "We decline to comment on the financial arrangements of any individual."