At a news conference, Stephenson was quick to deny claims that he had known about the phone hacking at the now defunct News of the World.
"I had no knowledge of the extent of this disgraceful practice, or indeed to the extent of it, and the repugnant nature of the selection of victims that is now emerging" he told reporters.
Stephenson was criticised for hiring a former News of the World executive editor Neil Wallis as a PR consultant. Wallis was arrested last week in connection with the police probe.
Stephenson's resignation came hours after police arrested Rebekah Brooks, the former head of Rupert Murdoch's UK newspaper business.
The 43-year-old was questioned in connection with allegations of phone hacking and corruption, but was later released on bail.
Brooks, who resigned on Friday from Murdoch's News International, is the 10th person to be arrested in connection with the scandal since the investigation was reopened earlier this year.
Representatives of the News of the World are alleged to have hacked the phones of up to 4,000 people.
Murdoch closed the tabloid, which was Britain's most successful Sunday newspaper, last week.
SOURCE: Euronews
