By coincidence, the royal charter was sealed by the Queen at Buckingham Palace in the presence of ministers the day the prosecution in the phone-hacking case started – more than four years after the scale of alleged phone hacking at News International was reported and 11 months after Lord Justice Leveson completed his report condemning newspapers for "wreaking havoc with the lives of innocent people".

The much-criticised response of the Press Complaints Commission to the phone-hacking allegations largely prompted the calls for an end to the current system of self-regulation.

But the new structure of regulation, agreed on Wednesday and immediately condemned by most newspaper groups, is unlikely be fully established until after the next election. It threatens to be boycotted by most newspaper groups angry at what they regard as a threat to centuries of press freedom by politicians.

Newspaper groups including the publishers of the Daily Mail, the Daily Mirror, the Daily Telegraph and the Times have promised to continue their legal challenges and will press ahead with setting up their own new regulator, the Independent Press Standards Organisation (Ipso). The groups, which include Associated, Trinity Mirror and News UK, vowed there was zero chance of them seeking recognition from the body to be established under the royal charter to verify the bona fides of a newspaper regulator.

However, if an alternative group of newspapers decide to set up a rival regulator that achieves recognition by the verifying body, then newspapers in the unverified regulator Ipso will be exposed to potentially severe court fines, and may find it prohibitively expensive to secure libel insurance.

Hacked Off, the victims' group, said it would press some newspapers to break ranks and say they will come together to set up a regulator that will seek recognition from the body set up by the government, to oversee and periodically review the effectiveness of newspaper regulation. No newspaper can be subject to punitive court fines for inaccurate stories until an industry regulator has been recognised and a newspaper has turned down the chance to join that regulator.

Coalition sources said they expected an appointments panel to be set up to select the chair of a board to oversee the newspaper regulator over the next three months.
But in one of many last-minute changes to the system of regulation, the government has said the new system cannot come into force until a year after the recognition body is established, taking the process beyond the 2015 general election.

The deputy prime minister Nick Clegg, at a Westminster press conference, said the government had rejected the newspaper industry's system of regulation due to "a very subtle argument about the means by which you establish the verifying body which every three years determines whether the self-regulatory body is working. The public need to be assured that those mechanisms contain a degree of independence from the industry itself."

He added that in talks over the past fortnight, the coalition had given three concessions to the industry.

Reassurances had been given to the local press that arbitration would not impose unnecessary costs. The newspapers would retain closer control of the editor's code committee, and no changes to the system of regulation could take place unless requested by the recognition body and supported by a two-thirds majority in parliament.

In a statement Hacked Off claimed: "News publishers now have a great opportunity to join a scheme that will not only give the public better protection from press abuses, but will also uphold freedom of expression, protect investigative journalism and benefit papers financially. We urge them to take this opportunity. It is what the Inquiry recommended, what the public and the victims of press abuse expect, and what all parties in Parliament have united behind.

"The time has come for the newspaper companies to listen to all of those voices, including the vast majority of their readers, and to distance themselves from a past marred by bullying, fabrication and intrusion".

The culture secretary, Maria Miller, said the charter was the best way to resist full statutory regulation of the sector, arguing it struck a fair balance between press freedom and safeguarding the victims of egregious reporting". She stressed she wanted to co-operate with the industry to work through the practical implications.

The shadow culture secretary Harriet Harman said newspaper groups have nothing to fear from the new system of regulation.

The newspaper industry had earlier failed to win a last-ditch effort to block the royal charter sealing. In the high court Lord Justice Richards said that the "merits of the claimants case are at best weak", and refused the publishers' application for a judicial review and an interim injunction.This left the publishers with the last minute option of taking the case to the court of appeal to try and get the high court ruling on the injunction and the judicial review overturned.

The four industry bodies that applied for the injunction decided not to appeal on Wednesday. However, they still intend to lodge an appeal against the high court's refusal of permission for a judicial review.

The case for an injunction and judicial review has the backing of four trade organisations representing newspapers and magazines – the Newspaper Publishers Association, the Newspaper Society, the Scottish Newspaper Society, and the Professional Publishers Association – through the Press Standards Board of Finance (PresBof), the funding body for the existing industry regulator, the PCC. PresBof made the industry's original royal charter application.

Some newspapers have taken a neutral position on the legal challenge. The Guardian is part of the NPA, in common with all other national newspapers, but is neither supporting nor rejecting it.