By Michael Holden and Kate Holton

LONDON (Reuters) - British Prime Minister David Cameron said on Thursday that he had serious concerns about legislation to regulate the media, risking a split in his coalition after a damning inquiry triggered by a phone-hacking scandal proposed a press watchdog backed in law.

Opposing a legal foundation to an independent press regulator will delight the British media ahead of the 2015 election but will deepen a divide in Cameron's coalition government and within his own party.

"We should be wary of any legislation that has the potential to infringe free speech and the free press," Cameron told parliament, watched from the chamber's gallery by victims of tabloid newspaper phone-hacking who have campaigned for tougher rules governing Britain's recalcitrant media.

"I'm not convinced at this stage that statute is necessary to achieve Lord Justice Leveson's objectives," Cameron said, referring to the judge who has spent a year investigating the press. "I have some serious concerns and misgivings on this recommendation."

The leader of the opposition Labour Party, Ed Miliband, said he supported a proposal by Leveson to back a new independent press watchdog with legislation.

Leveson said he had no intention of ending three centuries of press freedom but condemned sometimes "outrageous" behavior by the press that had "wreaked havoc with the lives of innocent people".

"The ball moves back into the politicians' court: they must now decide who guards the guardians," Leveson told a news conference in Westminster, opposite the House of Commons.

Leveson's inquiry was ordered by Cameron after public outrage at revelations that reporters at one of Rupert Murdoch's tabloids hacked the phone messages of a 13-year-old murder victim, Milly Dowler.

Leveson said there should be a new independent self-regulatory body, which would be recognized in law, something the press and many within Cameron's own party, including senior ministers, have adamantly opposed as an erosion of press freedom.

Nick Clegg, the leader of the junior Liberal Democrat partners in the coalition government, will deliver his own statement to parliament after Cameron, implying that the two disagree on the way forward.

'TOO CLOSE'

Leveson, whose inquiry laid bare phone-hacking, claims of police bribes and the cozy relationship between top editors and the political elite, said the relationship between politicians and the press was too close.

Leveson warned that the close ties formed between the government and Rupert Murdoch's News Corp over the aborted takeover of BSkyB was concerning and had the potential to jeopardize the $12 billion bid.

But he offered little in the way of direct criticism of individuals, ammunition for those who hoped it would condemn Cameron for his links to Murdoch's media empire

He said there was no credible evidence of bias on the part of senior minister and Cameron ally Jeremy Hunt in his handling of the BSkyB takeover, but said the close ties allowed a perception of favoritism.

Inquiry hearings embarrassed Cameron by exposing his close ties to executives at Murdoch's British newspaper empire, notably former top lieutenant Rebekah Brooks, who is facing criminal action over phone-hacking and other alleged illegal actions.

Cameron, three former prime ministers, senior ministers, press barons including the 81-year-old Murdoch, plus an array of celebrities such as Hollywood actor Hugh Grant were among the 164 witnesses to appear before the inquiry.

(Additional reporting by Tim Castle, Writing by Guy Faulconbridge,; Editing by Giles Elgood)