Tom Watson is to write to the competition watchdog urging it to refuse the Murdoch family’s takeover of Sky after it emerged that Fox News gave presenter Bill O’Reilly a new contract after paying $32m (£24m) to settle a sexual harassment suit against him.

Labour’s deputy leader and shadow culture secretary said the revelations showed Fox “allowed a culture of bullying to flourish” and made its parent company, the Murdoch-owned 21st Century Fox, an unsuitable owner for Sky.

The fact that O’Reilly, the pugnacious and hugely popular Fox News host, was given a more lucrative contract a month after settling the harassment lawsuit, was “jaw dropping”, Watson said. “It raises yet more questions about the corporate culture at 21st Century Fox. It has now been demonstrated beyond doubt that executives at Fox News were free to act with impunity in the knowledge that their actions would go unpunished.”

The culture secretary, Karen Bradley, said last month she was minded to refer the proposed takeover of Sky by 21st Century Fox to the Competition and Markets Authority (CMA) on the grounds of its commitment to broadcasting standards, as well as media plurality.

The decision means the CMA will scrutinise the editorial standards of Fox, which is controlled by Rupert Murdoch and his sons Lachlan and James.

According to a report in the New York Times on Saturday, O’Reilly was given the improved contract in February, a month after he agreed the $32m (£24m) payout to a regular on-screen analyst on Fox, who said O’Reilly repeatedly harassed her and sent indecent material.

According to documents seen by the newspaper, and the testimony of people who knew about the deal, it followed allegations covering 15 years by analyst Lis Wiehl.

Fox told the New York Times that it did not pay the amount to Wiehl, and was given no details of the amount.

But the paper said Rupert, Lachlan and James Murdoch had “made a business calculation to stand by Mr O’Reilly despite his most recent, and potentially most explosive, harassment dispute”.

It is at least the sixth such settled case involving O’Reilly, who was eventually sacked by Fox in April. He has denied any wrongdoing, telling the New York Times he paid the money to protect his family.

Watson said he would write to the CMA to urge it to take all this into account when deciding on the Sky takeover, calling the latest revelations about O’Reilly “depressingly familiar”.

He said: “They show that 21st Century Fox engaged in a prolonged campaign to cover up allegations of serious sexual harassment by a senior employee instead of investigating the claims and taking action against him. The fact that Fox handed Mr O’Reilly a lucrative new contract worth $25m months after he reportedly paid $32m to settle a claim by a colleague is jaw-dropping.”

Fox News has faced similar controversy before. In 2016, the network’s founder, Roger Ailes, was forced to resign after a series of sexual harassment accusations from female colleagues. Ailes died earlier this year.

“[Fox executives] knew they could rely on their employer to ignore serious allegations of sexual misconduct and pay huge sums to silence the women who made them,” Watson said.

“The parallels with the phone-hacking scandal at Rupert Murdoch’s UK newspaper empire are unsettling. Instead of admitting wrongdoing, the Murdoch family’s first instinct is to deny it took place and, in many cases, to label those who try to establish the truth as liars or fantasists. It is a pattern that keeps on repeating itself.”