Former News of the World editor Andy Coulson has told the hacking trial he was "shocked" when he heard voicemails of then-home secretary David Blunkett "declaring his love" for the married publisher of the Spectator.
Coulson told the Old Bailey trial he initially called a halt to the story in 2004 but later changed his mind and confronted Mr Blunkett about it personally.
The 46-year-old former No 10 spin doctor told jurors it was "the first and only time" a hacked phone message was played to him.
During his third day in the witness box, Coulson said he was first alerted to the story by then-chief reporter Neville Thurlbeck while he was on holiday in Italy.
Coulson said: "Neville told me he had a tip that David Blunkett was having an affair with Kimberly Fortier. He said that he believed the story was true because he heard some voicemails.
"I was shocked because he told me he had heard some voicemail messages. I was shocked that he was telling me this as well because it was in relation to David Blunkett, the home secretary.
"I was quite angry about it. I used reasonably colourful language, words to the effect 'What in earth do you think you're doing'.
"My concern was it was an apparent breach of privacy and I was concerned also that this was involving somebody who I knew. He was somebody we were broadly supportive of."
When he returned to work, Coulson said he had a meeting with Mr Thurlbeck, who argued his case by playing some voicemails.
Coulson said: "I remember a message which David Blunkett sent which was effectively declaring his love. He was also saying he had considered making the relationship public. There was a mention of terrorist arrests. I also had it in my mind there was a reference made to GCHQ.
"He (Mr Thurlbeck) told me he believed the relationship had been going on for three years.
"He told me that he believed there was a meeting planned between the two of them for the following Wednesday and he also made mention of a possibility that there might be an issue over the paternity of one of Kimberly Fortier's children."
Coulson said the more he listened, the more he started to think there was "some public interest justification".
Asked where he thought the reporter had got the vociemail by his lawyer Timothy Langdale QC, Coulson said: "The conversation did not go into detail about that. If I made an assumption, it was Neville had done this himself. It was all coming from Neville."
He added: "I remained shocked - this was the first and only time a voicemail had been played to me."
Later, Coulson said he took legal advice and made plans to meet Mr Blunkett in his Sheffield constituency.
He said: "I thought, rightly or wrongly, if I suggested to David Blunkett that I would not name Kimberly Fortier, he would be more likely to confirm the story."
Coulson told the court that, looking back, he "should not have handled the story the way I did".
The court heard a tape recording of Coulson's meeting with Mr Blunkett in on Friday August 13 2004.
In it, Mr Blunkett is heard to repeatedly protest that he had a policy of keeping his private life private.
He is heard to tell Coulson: "You are asking me to say yes, I have had a relationship with a married woman?"
Coulson replies: "Yes, and nothing more."
Mr Blunkett, who had been divorced for 14 years at the time, said: "You are putting me in a position where my longstanding precept of keeping my private life private is a disadvantage. Whatever I say breaches my precept of keeping my private life private."
The politician went on: "What I am saying to you is I have got two concerns: one is to prevent Kimberly Fortier from being damaged because she is a friend of mine and obviously her family and friends... I like to think I'm a decent human being, it would be a terrible thing to do to somebody; secondly, to prevent open season on my private life in the future."
During the lengthy exchange, Coulson makes the suggestion of keeping Ms Fortier's name out of the story and warns that other newspapers might run it even if the NotW did not.
But Mr Blunkett would only confirm that she was a "very close friend of mine", adding: "I'm not prepared to go into bedroom talk now or in the future.
"I'm concerned about Kimberly and about all my other married friends who do not want to be fingered either."
The court heard that Mr Blunkett released a statement later which appeared in the NotW story on Sunday August 15.
The paper also spoke to one of Mr Blunkett's special advisers, who confirmed there was nothing incorrect in the story.
He passed on Mr Blunkett's concern not to be seen to be "falling down on the job" or that the story had come from him. Coulson said that, to him, meant the story was "stood up".
The following day, the Sun, which was being edited by Coulson's on-off lover Rebekah Brooks, named the Spectator publisher, who is also known as Kimberly Quinn.
Coulson said he would have talked to Brooks about the story the previous Saturday night, but "the idea that we somehow shared the story is not true".
The court has previously heard that convicted hacker Glenn Mulcaire was involved in intercepting the voicemails and t apes were later recovered from a safe in the offices of News International.
When Mr Langdale asked what happened to the Blunkett tape afterwards, Coulson said "I don't know", adding that he did not recognise any of the safe documents.
Coulson, 46, of Charing, Kent, is charged with conspiring to hack phones with Rebekah Brooks and former managing editor Stuart Kuttner, and conspiring with former royal editor Clive Goodman to commit misconduct in a public office.
All seven defendants deny charges against them.
Coulson's evidence about the Blunkett affair is the first time he has told the trial that he heard a hacked voicemail at the NotW.
But he said he did not know the message from Mr Blunkett was the "product of an illegal act" and he was unaware hacking was illegal at the time.
On his regret over the Blunkett story, Coulson said: "It is easy to say now that what we were laying out in front of him was the product of an illegal act.
"My view is that I kind of wish I had. It would have brought the whole thing to a head and I would have at least been able to argue my point.
"I did not know it was illegal. How it would have ended I have no idea. It could have ended in legal action. It could have ended in police action. I sincerely wish I had followed that course of action at that moment."
The trial was adjourned until Tuesday morning.