The leader also defended the conduct of Culture Secretary Jeremy Hunt and the decision to put him in charge of judging Rupert Murdoch's controversial bid to take full control of the lucrative BSkyB broadcasting company. Hunt has been accused by critics of being too close to the media mogul and his company, News Corp.
Cameron shed light on the cozy relationship he enjoyed with senior Murdoch executives as he tried to wrest control of Britain's government from the Labour Party before the 2010 general election that brought him to power, acknowledging extensive social contacts and supportive text messages.
In sworn testimony before a U.K. media ethics inquiry, Cameron said he chose Coulson for the key communications post because he wanted a tough man to implement his media strategy in a demanding, 24/7 news environment.
"I had met him when he was editor of News of the World, and I felt he was a very effective individual," Cameron said of Coulson. "That was my decision; I take full responsibility for it."
Cameron said he had received assurances that Coulson was not personally involved in the phone-hacking scandal — but those proved hollow when Coulson was forced to resign from his senior government post last year after new revelations about widespread wrongdoing while he was top editor at the News of the World.
Coulson, who has since been charged with perjury and denies wrongdoing, resigned as News of the World editor in 2007 after his paper was found to have hacked into the voicemail messages of top aides to the royal family.
The practice was initially characterized as the work of a rogue reporter, but later proven to be widespread, accepted procedure at the now-defunct paper.
The prime minister said Thursday that he believed at first that Coulson had acted "honourably" by resigning from the paper and believed he deserved a second chance.
Cameron's decision to bring Coulson into his inner circle has left the prime minister open to questions about his judgment.
"This has come back to haunt both him and me," Cameron said.
Cameron also admitted seeking the advice of Rebekah Brooks, another former tabloid editor facing criminal charges, before hiring Coulson.
Both Brooks and Coulson were senior editors in Rupert Murdoch's News International empire, and Brooks eventually became chief of Murdoch's U.K. newspapers before she, too, was forced out by the scandal.
The prime minister admitted frequent visits with Brooks and her husband, Charlie Brooks, who also faces criminal charges in the scandal. He said Charlie Brooks was a longtime friend and frequent tennis partner.
Cameron also acknowledged receiving an extremely encouraging text from Brooks in 2009 just before a major party conference speech during the run-up to the general election.
"I'm so rooting for you tomorrow, not just as a proud friend but because professionally we are in this together," Brooks wrote to Cameron before the big event. "Speech of your life? Yes he Cam!"
The text shows how close Cameron was to Murdoch's chief executives during the months before Britain's 2010 national election, when the incumbent Labour government was ousted after 13 years in power.
Cameron said James Murdoch, Rupert's son, told him personally over drinks that The Sun newspaper would back his party at the general election, switching its support to the Conservative Party after years of backing its rival Labour Party.
Coulson has been charged with perjury in a case linked to the phone-hacking scandal. Brooks was charged last month with three counts of conspiracy to pervert the course of justice — an offence that carries a maximum sentence of life imprisonment.
Relations with Murdoch's powerful media empire have been problematic for Cameron. The prime minister has faced criticism for the way his government handled Murdoch's bid to take full control of British Sky Broadcasting, a lucrative satellite broadcaster in which it already had a 39 per cent stake.
Cameron told the committee that his government consulted its lawyers and acted properly in appointing Hunt to oversee the government's response to the bid. He said careful review was needed because the takeover bid raised serious public policy questions about media plurality.
He has defended Hunt from charges that he was too close to James Murdoch and provided the company with inside information about the vetting process.
"It was a perfectly rational decision, done with the advice of lawyers," Cameron said.
In a separate developments Thursday, Scotland Yard said it had arrested three people — including an ex-prison officer and a reporter from Murdoch's The Sun tabloid — in connection with an inquiry into alleged illegal payments made by newspapers to public officials.
The Independent Police Complaints Commission, Britain's policing watchdog, also said that a superintendent from the City of London Police — which covers the capital's financial district — was arrested Thursday on suspicion of passing unauthorized information to a journalist. It did not offer further details of the alleged offence.