DAVID Cameron's hopes for cross-party consensus on a response to the Leveson Inquiry were dashed after Labour leader Ed Miliband insisted that a new press regulator should be established in law.
The British Prime Minister said politicians should be wary of legislation which could potentially "impinge free speech and a free press".
But Mr Miliband said without a legal underpinning for any new regulator "there can't be the change we need".
Mr Cameron called for immediate cross party talks with Mr Miliband and Liberal Democrat leader Nick Clegg, the Deputy Prime Minister.
Mr Clegg sat beside Mr Cameron as he made his statement, but will use his own appearance at the despatch box to set out his views on the Leveson Inquiry in a sign of division at the top of the coalition.
In a statement to the Commons Mr Cameron insisted he agreed with the "Leveson principles" on regulation but was not convinced new laws were necessary.
The Prime Minister said the press should be given a "limited period of time" to put a new system in place.
"While no one wants to see full statutory regulation, the status quo is not an option," he warned.
Mr Cameron said Lord Justice Leveson set out the key requirements for a self-regulatory body: "Independence of appointment and funding, a standards code, an arbitration service and a speedy complaint handling mechanism.
"Crucially, it must have the power to demand upfront, prominent apologies and impose up to £1 million fines," he said.
"These are the Leveson principles, they are the central recommendations of the report.
"If they can be put in place we truly will have a regulatory system that delivers public confidence, justice for the victims and a step change in the way the press is regulated in our country.
"I accept these principles and I hope the whole House will come in behind them.
"The onus should now be on the press to implement them and implement them radically."
But he added that Lord Justice Leveson had proposed changes to the Data Protection Act to reduce the special treatment given to journalists.
Mr Cameron said he was "instinctively concerned about this proposal".
He accepted the Leveson report's recommendation that there should be incentives to encourage newspapers to sign up to the new regulator.
But on the crucial issue of legislation Mr Cameron set out his reservations, to cheers from many MPs on the Conservative benches.
The Prime Minister said: "The issue of principle is that for the first time we would have crossed the Rubicon of writing elements of press regulation into the law of the land."
He added that although the new law may have a simple intention, it could become more complicated.
"The danger is that this would create a vehicle for politicians whether today or some time in the future to impose regulations and obligations on the press, something that Lord Justice Leveson himself wishes to avoid."
Mr Cameron also said he was "not convinced at this stage that legislation is necessary to achieve Lord Justice Leveson's objectives".
"I believe there may be alternative options for putting in place incentives, providing reassurance for the public and ensuring the Leveson principles of regulation are put in place, and these options should be explored."
Mr Cameron said it was important to remember the victims of phone hacking and press intrusion.
"We should remember how the family of Millie Dowler, at their most vulnerable moment, had their daughter's phone hacked and were followed and photographed," he said.
"How Christopher Jefferies' reputation was destroyed by false accusations. How the mother of Madeleine McCann, Kate, had her private diary printed without her permission and how she and her husband were falsely accused of keeping their daughter's body in the freezer.
"These victims, and many other innocent people who have never sought the limelight, have suffered in a way we can barely begin to imagine."
Mr Cameron said he supported the Leveson recommendations on the police, including a 12-month cooling-off period between leaving a force and joining a media organisation and better recording of contacts with journalists.
He also backed proposals for greater disclosure of contacts between politicians and the press.
Mr Miliband described the Leveson principles as "measured, reasonable and proportionate", and supported the recommendation that a regulator should be backed by law.
"We endorse Lord Justice Leveson's proposal that the criteria any new regulatory body must meet should be set out in statute," said Mr Miliband.
"Without that, there can't be the change we need."
He suggested a timetable for implementing the proposals be discussed when party leaders hold talks.
Mr Miliband said: "These talks must agree a swift timetable for implementation of these proposals, agree to legislate in the next session of Parliament starting in May 2013, with a new system up and running at the latest by 2015."
He also backed a role for Ofcom, saying it would provide a "crucial, new guarantee", and be a "truly independent regulator".
The Labour leader said Lord Justice Leveson's report meant politicians could focus on "upholding the freedom of the press, and guaranteeing protection and redress for the citizen".
Mr Miliband said a free press was "essential to a functioning democracy".
He told MPs: "The press must be able to hold the powerful, especially politicians, to account, without fear or favour.
"That is part of the character of our country.
"At the same time, I do not want to live in a country where innocent families like the McCanns and the Dowlers can see their lives torn apart simply for the sake of profit, and where powerful interests in the press know they won't be held to account.
"This is about the character of our country."
Mr Miliband said the case for enforcing Lord Justice Leveson's recommendations was "compelling, the evidence overwhelming".
The Labour leader added: "This is a once-in-a-generation opportunity to make change the public can trust. There can be no more last chance saloons."
Chairman of the Culture, Media and Sport Select Committee John Whittingdale asked the Prime Minister: "Do you agree there is now almost universal agreement we must have a strong new regulator, that it must be seen to be independent, and that it must be established as quickly as possible?
"However, can I very strongly welcome your statement that the question of whether or not the regulator should have statutory underpinning is something that Parliament needs to consider very carefully, perhaps through a regular assessment of its effectiveness by the select committee, but that we should only proceed to legislate if it becomes absolutely clear it will not function properly without that."
Mr Cameron said: "What matters, as you say, is the enormous consensus there is about what independent regulation should consist of.
"The powers that are necessary - we all know we need million-pound fines, proper investigations, editors held to account, prominent apologies, that is what victims deserve.
"But you are right, we need to think carefully before we try to pass legislation in this house."
Labour former culture secretary Ben Bradshaw said: "How, without the statutory underpinning Lord Justice Leveson says is essential, do you think a new body can prevent a newspaper group simply walking away or ignoring the new body's findings?"
Mr Cameron replied: "Lord Justice Leveson does not himself have an answer to that question of what happens if a newspaper walks away. His system is a voluntary system.
"I think the same question applies to him."
Liberal Democrat deputy leader Simon Hughes said: "Are you as clear as I am in reading paragraphs 70 to 76 that Lord Justice Leveson makes two things absolutely central?
"There should not be legislation to establish a body to regulate the press but he says that it is essential there should be legislation to underpin the independent self-regulatory system.
"'Essential' seems to be a very clear word. Do you accept that?"
Mr Cameron said: "I think this is absolutely the key argument that has to be had and the discussion that has to be had across parties.
"What Lord Justice Leveson is saying is the statutory underpinning is necessary to give effect properly to this independent body. Of course, what he intends is it will be a very neat, very small piece of statute.
"But in paragraph 71, for instance, it says this law would not give any rights to these entities, except insofar as it would require the recognised self-regulatory body to have the power to direct the placement and prominence of corrections and apologies.
"I'm saying is what you would find, and we have tried this, once you try writing a law that provides the statutory underpinning that starts describing what this regulatory authority, what powers it has, how it is made up, you find pretty soon you have got quite a big piece of law.
"That is the concern and that is the Rubicon we need to think very carefully before we cross."
Former home secretary Jack Straw said: "Do you not appreciate that the argument made by Lord Justice Leveson is not for statutory regulation but it is in order to enforce and give backing to the proposals in the press and the fundamental flaw with the proposals of the press, as Lord Justice Leveson clearly sets out, is not their intention, which I acknowledge is now an honourable one, it is that it is impossible to deliver the independence proposed by the press themselves and the enforcement, for example not least on penalties of legal costs, without some overarching form of statutory backing.
"I plead with you to recognise the force of the argument, not that I'm making, but that Lord Justice Leveson is making."
Mr Cameron replied: "You are entirely right. He is not recommending statutory regulation of the press, he wants to take steps so we avoid statutory regulation of the press. I fully respect that.
"But the system he recommends is not a compulsory system, it doesn't guarantee that everyone takes part.
"Where we are in complete agreement is he doesn't want statutory regulation, neither do I. He wants strong, independent regulation, that is what I want. The principles of strong independent regulations are what we have to put in place and that is what the press should start to put in place straight away."
Senior Tory Sir Malcolm Rifkind (Kensington) said: "The central requirement is a press complaints procedure that will not only be fully independent but will also restore public confidence. I ask you to look very objectively at the case as to whether an Act of Parliament would enhance that credibility."
Mr Cameron said: "Once you start writing a piece of legislation that backs up an independent regulator, you have to write into that legislation, what are its powers, what is its make-up, and you find pretty soon, I would worry, that you have a piece of law that really is a piece of press regulatory law.
"That is an enormous step for us to take. We have to think about it very, very carefully."
Labour MP Chris Bryant, who previously accused Mr Hunt of "lying to the House" over his contact with News Corporation representatives and was himself a phone hacking victim, admitted politicians were heavily criticised by the judge's report.
The Rhondda MP said: "We all share an interest in this and Lord Justice Leveson reserves his strongest condemnation for the political class in this country.
"He believes that over years, either because we have been too compromised or too craven or too cowardly, we have refused to act.
"We now have an independent figure telling us what to do. Surely if we don't do what he says, which is provide a change in the law, there will be more Milly Dowlers, and that will be our fault."
Mr Cameron, who has repeatedly demanded Mr Bryant apologise over his allegations, hit back: "One of the other problems with the political class is never saying sorry when they have got it wrong."
Labour MP Sir Gerald Kaufman (Manchester Gorton), a former journalist, urged the prime minister to resist new laws.
Mr Kaufman said: "As somebody who was a Fleet Street staff journalist for ten years, I am instinctively opposed to statutory regulation of the press.
"If the Rubicon is not to be crossed, it's up to the press to accept the recommendations of Leveson, to do them in full, to do them fast and to do them with all proprietors involved."
Conservative MP Philip Davies, who sits on the Media Select Committee, feared the Ofcom boss would wield too much power if the body was responsible for regulating newspapers.
The Shipley MP said: "We just can't simply farm out these important decisions with a blank cheque to somebody who is wholly unelected and unaccountable.
"Having the Government say to the press, 'These are the specific steps we need you to take, otherwise we will either legislate or regulate' is a pretty rum form of self-regulation."
Tory Jacob Rees-Mogg (North East Somerset) echoed his call, saying: "It is very hard to see how giving incentives by legislation is not licensing.
"It is better ultimately to have an irresponsible but free press than to have a responsible but State-controlled press."
Conservative Conor Burns, who organised an open letter this week opposing State-backed regulation, said Lords Black and Hunt, the peers behind proposals for a beefed-up Press Complaints Commission, should be allowed to study Lord Justice Leveson's recommendations and adapt their own plans.
The Bournemouth West MP said they could "add to their recommendations and get on with the job so we can restore robust confidence in a free press that is the cornerstone of a free society".
But Mr Cameron believed ministers "need to be tougher on Lords Black and Hunt than that" and said the press should know what was expected to avoid legislation, adding: "If they're not put in place we would have to take further action."
The prime minister told the Commons he would "not be doing my job" if he said: "Every single aspect of this is absolutely fine without any changes."
He added: "I am proud of the fact we have managed to last hundreds of years in this country without statutory regulation or mention of the press.
"If we can continue with that, we should. That seems the minimum this House of Commons should be considering in terms of defending the freedom of our country."
He urged MPs to "stop, pause and think" before demanding new laws.