By Michael Holden and Kate Holton
LONDON (Reuters) - Britain's often outrageously behaved press should be regulated by a watchdog backed in law, an inquiry triggered by a phone-hacking scandal said on Thursday, pitching Prime Minister David Cameron into a political dilemma that may split his government.
Cameron also risks the wrath of the British press ahead of the 2015 election if he imposes legally backed regulation but faces a split in his coalition government if he tries to water down the main recommendations of the report.
Lord Justice Brian Leveson said he had no intention of ending three centuries of press freedom but condemned sometimes "outrageous" behavior by the press that had "wreaked havoc with the lives of innocent people".
"The ball moves back into the politicians' court: they must now decide who guards the guardians," Leveson told a news conference in Westminster, opposite the House of Commons.
Leveson's inquiry was ordered by Cameron after public outrage at revelations that reporters at one of Rupert Murdoch's tabloids hacked the phone messages of a 13-year-old murder victim, Milly Dowler.
Leveson said there should be a new independent self-regulatory body, which would be recognized in law, something the press and many within Cameron's own party, including senior ministers, have adamantly opposed as an erosion of press freedom.
Cameron is due to speak to the House of Commons at 1500 GMT under scrutiny from the chamber's public gallery filled with high-profile figures who have campaigned for a clampdown on an industry they say ruins lives.
"I'll be responding to Lord Justice #Leveson at 3pm - giving a clear sense of direction," Cameron said on his Twitter feed.
Nick Clegg, the leader of the junior Liberal Democrat partners in the coalition government, will deliver his own statement to parliament after Cameron, implying that the two disagree on the way forward.
Leveson, whose inquiry laid bare phone-hacking, claims of police bribes and the cozy relationship between top editors and the political elite, said the relationship between politicians and the press was too close.
Leveson warned that the close ties formed between the government and Murdoch's News Corp over the aborted takeover of BSkyB was concerning and had the potential to jeopardize the $12 billion bid.
But he offered little in the way of direct criticism of individuals, ammunition for those who hoped it would condemn Cameron for his links to Murdoch's media empire
He said there was no credible evidence of bias on the part of senior minister and Cameron ally Jeremy Hunt in his handling of the BSkyB takeover, but said the close ties allowed a perception of favoritism.
Inquiry hearings embarrassed Cameron by exposing his close ties to executives at Murdoch's British newspaper empire, notably former top lieutenant Rebekah Brooks, who is facing criminal action over phone-hacking and other alleged illegal actions.
Cameron, three former prime ministers, senior ministers, press barons including the 81-year-old Murdoch, plus an array of celebrities such as Hollywood actor Hugh Grant were among the 164 witnesses to appear before the inquiry.
(Additional reporting by Tim Castle, Writing by Guy Faulconbridge,; Editing by Giles Elgood)
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