During his evidence at the Royal Courts of Justice, Osborne said the decision to transfer responsibility for the BSkyB bid to the Culture Department and Jeremy Hunt was taken by the civil service and in particular Permanent Secretary Jeremy Heywood.
Asked if the civil service had made the decision, Osborne responded: "Yes, definitely the Permanent Secretary. Definitely the non-partisan civil service."
The quasi-judicial role was transferred to Mr Hunt after Vince Cable's opposition to the bid was exposed in the media when reporters secretly recorded him declaring war on Mr Murdoch.
The Chancellor also defended the decision to recruit Andy Coulson as Conservative director of communications, insisting the former editor of the News of the World's contacts with News International, which published the now defunct Sunday tabloid, were "not relevant" in his appointment.
He admitted he had not interrogated Mr Coulson about the possibility of hacking at the paper being widespread following the conviction of its royal editor Clive Goodman but had made a "reasonable assumption" the police had uncovered all the relevant evidence.
Mr Osborne said he remained friends with Mr Coulson but had been unable to speak to him for a year.
He said: "I was very impressed by him and I think it confirmed my instinct that he would be a very good candidate for the job.
"I thought it was worth hiring someone with real talent and ability and weathering the adverse publicity that appointing someone who had resigned from the News of the World would bring."
Earlier, former Prime Minister Gordon Brown used the Inquiry to repeat previous denials about claims he had "declared war" on Rupert Murdoch in a telephone call to the media mogul and behaved aggressively to former News International chief executive Rebekah Brooks.
He said the conversation where he was "alleged to have acted in an unbalanced way" as well as threatening Mr Murdoch "never took place".
"I'm shocked and surprised that it should be suggested even when there is no evidence of such a conversation," he said.
He also criticised the way The Sun published a story about his son Fraser's cystic fibrosis, which he had complained about in July 2011.
The ex-Labour leader called for measures to stop the "conflation of fact and opinion" in the press.
Political Editor Tom Bradby reports:
Mr Osborne struck a different tone, warning Lord Justice Leveson it would be a "slippery slope" to impose restrictions on the media based on judgments about what was in the public interest.