News International, which published the News of the World until it closed in July, has admitted to carrying out surveillance on lawyers Mark Lewis and Charlotte Harris, who have both represented high-profile phone hacking victims.
Last night, it was also alleged that News of the World had hired a private investigator to conduct surveillance on more than 150 public figures between 2003 and this year.
Alongside celebrities such as Simon Cowell and Sienna Miller, there were also a number of politicians on the list of surveillance targets revealed by private investigator Derek Webb to the BBC's Newsnight.
This included Watson, who is a member of the Commons culture, media and sport select committee and a committed campaigner against the Rupert Murdoch's News Corporation.
Last month, the MP travelled to Los Angeles to speak at News Corp's annual meeting, warning shareholders that there were more revelations to come in the phone hacking scandal.
He feels that last night's revelations show that Murdoch's business is not meeting its pledge to clean up the scandal, showing that the business is instead "rotten to the core".
"Two weeks ago I heard Rupert Murdoch tell shareholders at their meeting in America that they spent the year getting to the bottom to the phone hacking scandal," Watson said in a video interview with The Daily Telegraph.
"But what we now know is that they had hired private investigators to follow Milly Dowler's lawyer and other lawyers who were representing victims. It's rotten to the core and I think Rupert Murdoch owes the lawyers and others an explanation.
"I don't have the evidence for this, but I have been told that I was a target for private investigators and former employees of the company have told me that they were compiling reports on members of the DCMS committee."
The latest revelations heap pressure on James Murdoch, the heir-apparent to the News Corp empire, who is due to appear before the culture committee again tomorrow to clarify statements he made over knowledge of phone hacking at News International.
Watson feels that it is now time for James Murdoch and his father Rupert to "carry the can for what has gone on on their watch".
"I think most members of the public would see this type of scandal as showing a company that is rotten to the core. They don't want this constant drip-drip of revelations, they just want the company to acknowledge the scandal," said Watson.
"You know, a company hacking people's phones, hiring private investigators to follow people around the country, that sort of thing used to happen in the former Soviet Union or East Germany. It shouldn't be happening in the United Kingdom.
"And for it to happen this year, after all the inquiries and all the investigations I think is just incredible, and at some point politicians must step in and deal with this rogue company."
He added: "Ultimately, it's time for James and Murdoch to carry the can for what has gone on on their watch."