Former escort boss Natalie Rowe, in a television interview being aired later Monday, says the tabloid deliberately twisted her claims that she and the Conservative Party politician used to snort cocaine together years ago so that Osborne was not tainted in the scandal.
The idea that Osborne — now one of the country's most powerful politicians — could have been deliberately cast in a sympathetic light by a Murdoch paper have raised new questions about whether the now-defunct tabloid was playing favourites with its political exposes.
It also highlights the cozy ties between British politicians and the Murdoch press that Prime Minister David Cameron has vowed to cut. Osborne was the key Conservative to recommend that Murdoch executive Andy Coulson, a former News of the World editor, become Cameron's top communications aide.
The story begins with Rowe's 2005 claim that she and Osborne used to snort cocaine together years ago. At the time, it was exactly the kind of story the brash News of the World loved — a mix of sex, politics and drugs — and even came with a picture of the youthful pair that the tabloid said showed them arm-in-arm with a white substance in front of them.
But while the News of the World trumpeted the story across its front page, it took an unusually forgiving approach to Osborne, who at the time was managing Cameron's bid to become leader of the British Conservatives.
Rowe now claims that News of the World reporters stole her story, which she was hoping to sell to a rival newspaper, and deliberately twisted the facts to make Osborne look better.
In an interview with Australian Broadcasting Corp. television, she accused the Murdoch tabloid of making her seem unreliable so as to undermine allegations against a man who now holds one of the most senior positions in the British government.
"They stole the story and then they didn't even tell it as it should have been told," Rowe said, according to a transcript of the interview due to be aired later Monday. "They completely diluted it and made it look like I was not to be trusted .... and all for George Osborne."
Rowe's claims that she, Osborne and his well-heeled friends indulged in cocaine together at louche parties are long-standing and have been repeatedly denied by the 40-year-old Osborne.
In her interview, Rowe claims that she was hoping to publish her allegations in the Sunday Mirror, which put out a story entitled "I snorted cocaine with top Tory boy" on October 16, 2005.
But the News of the World — under circumstances which remain unclear — got a hold of the story at the same time, running it under a less explicit headline: "Top Tory, coke and the hooker"
In an unsigned editorial published alongside the story, the News of the World said that Osborne "has now owned up to his encounters with a cocaine-snorting call-girl. And robustly condemns drugs for the destruction they wreak."
The paper noted that it had previously predicted that the Tory leadership was "Cameron's for the taking," adding: "Nothing published since then has made us change our mind."
Rowe's lawyer Mark Lewis has claimed that if the News of the World had taken a tougher line against Osborne, his career would have been finished.
Osborne's representatives did not return repeated emails and calls seeking comment on Monday. A spokeswoman for Cameron, who spoke on condition of anonymity in line with office policy, said the prime minister was aware of Rowe's interview and allegations against Osborne.
"He has denied these allegations previously," the spokeswoman said.
Coulson, who was editing the News of the World when the cocaine story came out, didn't return a call and a text message seeking comment.
Coulson resigned in 2007 when a royal editor at the News of the World was jailed over phone hacking — a practice which was then claimed to have been limited to a single rogue reporter — but later found work with Cameron, becoming the Tory chief's most senior press adviser.
Rebekah Brooks, Coulson's predecessor at the News of the World, has said that Osborne personally recommended him for the job.
But earlier this year, as evidence piled up that phone hacking had been rife under Coulson's watch, he was forced to resign. Coulson later became one of at least 16 people arrested over the phone hacking scandal, in which the paper he ran stands accused of illegally hacking into the voice mails of celebrities, politicians and even murder victims in search of scoops.
Murdoch was forced to shut the top-selling tabloid and abandon his multibillion pound (dollar) bid for full control of satellite broadcaster BSkyB in the wake of the controversy.
Several senior Murdoch aides, as well as two British police leaders, have also had to resign.
David Stringer in Moscow contributed to this report.