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The two agreed a deal on cross-media ownership after last week's defeat for the government, when cross-party support saw an amendment passed in the House of Lords, which called for Ofcom to put greater effort into representing the interests of "citizens" first.

Stephen Carter yesterday attacked the amendment in his inaugural speech as Ofcom chief executive. Speaking at the ISBA annual lunch in London, Carter accused Lord Puttnam of failing to understand the new watchdog and that his recent amendment would move Ofcom away from its dual role of representing citizens and consumers.

Lord Puttnam has said he will withdraw his amendment now a deal has been agreed with the government, which will introduce a new plurality test in the bill to ensure there is real choice and diversity in the UK's media.

For newspaper owners like Rupert Murdoch, it means that winning control of Five will be much harder under the new rules because Ofcom will be able to block takeovers "in the public interest", even if the central issue is not one of monopoly.

On agreeing his deal with the government, Lord Puttnam said that he would also drop his insistence that non-EU media barons are prevented from buying Five.

Lord Puttnam believes that if the new plurality rule is as effective as it should be, other safeguards, such as outright prevention of media owners like Murdoch buying Five, will not be needed.

Lord Puttnam told the BBC: "For the first time, this delivers the concept of the 'public voice'."

He said it would stop one man or a corporation gaining too much control of the media and distorting what the public watch and hear, and because of this he said it would be "churlish" to continue pushing for a ban on US media groups buying up the UK television industry.

The deal on plurality is designed to protect the UK media industry because the current rules, which prevent anyone who controls more than 20% of the national newspaper market buying a terrestrial TV station, are being replaced by the communications bill.

However, despite Lord Puttnam's deal, the government's problems are not over yet. The cross-party support that Lord Puttnam rallied does not intend to give up the fight.

Liberal Democrat peer Lord McNally told the BBC that the plurality test alone was not enough and that he would still be pushing the amendments on Five ownership and non-EU buyers.

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