Police are investigating a "network of corrupt officials" as part of their inquiries into phone hacking and police corruption, a media inquiry has heard.
Deputy Assistant Commissioner Sue Akers told the Leveson Inquiry evidence suggested a "culture of illegal payments" at the Sun newspaper.
She said payments allegedly made by the Sun were authorised at a senior level.
This part of the inquiry is looking at the relationship between press and police in the light of the hacking row.
Ex-Scotland Yard senior officer Brian Paddick and former deputy prime minister Lord Prescott also gave evidence.
Earlier, the inquiry was told that the then Sun editor Rebekah Brooks was briefed by police about their investigation into phone hacking in 2006.
But counsel to the inquiry, Robert Jay QC, said police told her it was not planning to extend its phone-hacking inquiry to include News of the World staff other than Clive Goodman, the reporter jailed with private investigator Glenn Mulcaire in 2007 for illegally accessing royal aides' voicemails.
DAC Akers told the inquiry that evidence suggested that the Sun often made payments to relatives or friends of sources and that one of those arrested allegedly acted as such a conduit.
The payments being investigated were not ones that "just involve the odd drink or meal," she said. They were "regular, frequent and sometimes significant sums of money to public officials".
Payments by journalists to public officials were identified in the "police, military, health and government", she said.
DAC Akers said there was some evidence of officials being put on retainers.
Over a number of years, £80,000 was paid to one individual, she said, while one journalist received £150,000 from the paper to pay sources.
"Emails indicate that payments to sources were openly referred to at the Sun," DAC Akers said.
In her written statement, DAC Akers said there was recognition that this behaviour was illegal, with reference made to staff "risking losing their pensions or job", to the need for "care" and to the need for "cash payments".
DAC Akers said the vast majority of stories stemming from such payments appeared to have constituted "salacious gossip" rather than being in the public interest.
News Corporation chairman and chief executive Rupert Murdoch later issued a statement insisting the practices were "ones of the past, and no longer exist at the Sun".
Lord Prescott, who received a £40,000 settlement over phone hacking, was asked about the relationship between the press and News International, owner of the Sun.
He told the inquiry: "I always thought it was wrong that politicians at the highest level were too close to Murdoch. There is always a price.
"It's not exactly corruption and I'm not accusing them of that... I thought it gave a corrupting influence that they had too much influence and power."
He told the inquiry of the reluctance by the Met Police to investigate phone hacking. He was told by police in 2009, after the Guardian newspaper reported the practice was widespread at the NoW, there was no evidence he had been targeted.
Detectives questioned Mulcaire about the hacking of his agent Joan Hammell in 2006, he said, but it was not until February 2011 that police told him 44 messages from him on her phone may have been intercepted, he said.
The Labour peer praised DAC Akers's inquiry, but said he was concerned police "withheld the truth" over the extent of phone hacking.
"I think there is a conspiracy of silence to hide the facts and frankly I am stronger of that view in the last few months," he said.
Last year Lord Prescott and Mr Paddick successfully argued at a judicial review that the Metropolitan Police failed to notify them about potential hacking.
Mr Paddick, who retired from the force as Deputy Assistant Commissioner in 2007, told the inquiry that analysis of Mulcaire's computer revealed the private investigator had details about people in the police's witness protection programme, including the killers of toddler James Bulger.
"For this information to be in the hands of Mulcaire, and by implication potentially in the hands of the News of the World, it's clearly worrying," he said.
He said it was difficult to see how people could have "complete confidence" in the phone-hacking investigation.
It might be "better for the public perception if these matters were investigated by an outside force," he said.
He went on: "There are thousands of honest decent police officers who like me are horrified by the sort of conduct that Sue Akers was talking about this morning.
"A lot of junior officers feel very let down by their senior officers."
Opening Monday's hearing, Lord Justice Leveson paid tribute to reporter Marie Colvin, who died during shelling in the Syrian city of Homs on 22 February.
Lord Justice Leveson said Ms Colvin's death had underlined "the need to preserve free speech and free press".
In his opening statement, Mr Jay said relations between News International and the Metropolitan Police were at best "inappropriately close".
The nature of their relationship, he said, might explain why police did not properly investigate phone hacking in 2006, or later in 2009 and 2010.
Neil Garnham QC, representing the Metropolitan Police Service, told the inquiry the decision not to put more resources into the original phone-hacking investigation had been reasonable "because as serious as the interception of telephone calls is, it is not a matter of life and liberty".
The Leveson Inquiry has two parts, the first of which is examining relations between the press, politicians and police, and the conduct of each.
The second part will look at the extent of unlawful or improper conduct within News International and other media organisations.