By Michael Holden and Sam Tobin

LONDON (Reuters) - Prince Harry's case against Rupert Murdoch's British newspaper group is due to return to court on Wednesday with the possibility the warring sides have thrashed out a last-minute deal to settle claims of widespread wrongdoing at the publisher.

Harry and former senior lawmaker Tom Watson are suing News Group Newspapers over alleged unlawful activities carried out by journalists and private investigators working for its papers, the Sun and the defunct News of the World, from 1996 until 2011.

An eight-week trial to decide their hotly-contested lawsuit was supposed to start on Tuesday but, in an unexpected twist, both sides asked for more time to thrash out a deal, to the chagrin of the judge, Timothy Fancourt, who said they had had plenty of time to reach an agreement.

"There have been very intense discussions over the last few days," NGN's lawyer Anthony Hudson said, while he and Harry's lawyer said there had been "time difference difficulties" in a reference to Harry, who lives in California.

Harry first brought his lawsuit against NGN in 2019, one of a number of claims he has brought against British newspapers.

NGN has paid out hundreds of millions of pounds to victims of phone-hacking and other unlawful information gathering by the News of the World, and settled more than 1,300 lawsuits involving celebrities, politicians, well-known sports figures and ordinary people who were connected to them or major events.

But it has always rejected any claims that there was wrongdoing at the Sun newspaper, or that any senior figures knew about it or tried to cover it up, as Harry's lawsuit alleges.

The prince, 40, has said his mission is not to get money but to get to the truth, after other claimants settled cases to avoid the risk of a multi-million pound legal bill that could be imposed even if they won in court but had rejected NGN's offer.

Hudson said on Tuesday that if the trial started, "a very substantial sum becomes payable" which he said would "have a very significant impact on the settlement dynamic".

If it does go ahead, the trial will first consider "generic issues" such as the extent of any phone-hacking and unlawful information gathering at the papers.

It will then move onto the two claimants' specific cases, with Harry himself due to give evidence next month.

(Reporting by Michael Holden; Editing by Christina Fincher)