"We are very disappointed with this outcome, but do believe the original investigation was conducted within the bounds of the law and the industry's Code. This was demonstrated by the CPS decision to prosecute. "The Sun, of course, takes the Judge's remarks very seriously. Mr Mahmood has been suspended pending an immediate internal investigation."
Ms Contostavlos appeared ecstatic, punching the air as she left the dock before crying as she hugged supporters including her PA, Gareth Varey, shortly after the case against her was thrown out.
Mike GLC - whose real name is Michael Coombs - pleaded guilty before the start of the trial to supplying half an ounce (13.9g) of cocaine but he also walked free after judge said the case cannot proceed against him.
The 36-year-old also wept as he hugged defence barrister Jeremy Dein QC.
The judge in the trial of Tulisa Contostavlos told the jury there were "strong grounds" to believe an undercover reporter had "lied" at a hearing before the trial began.
Judge Alistair McCreath was speaking as he threw out the case at Southwark Crown Court.
The Sun's Mazher Mahmood - known as the 'Fake Sheikh' - had posed as a wealthy film producer when he met Contostavlos at a number of hotels and restaurants.
The former N-Dubz singer strongly denied that she had helped broker a drug deal between Mahmood and her rapper friend Michael Coombs, also known as Mike GLC.
The trial of former X Factor judge Tulisa Contostavlos has collapsed.
The singer was accused of helping to broker a drug deal between a friend and an undercover reporter known as 'the Fake Sheikh'.
Former X Factor judge Tulisa Contostavlos had to leave a hearing briefly over an alleged drug deal because she suffered a sudden nose bleed in the dock.
She returned after a short adjournment.
The case was adjourned until 10am tomorrow when the prosecution are due to open the case.
Michael Coombs has been bailed after pleading guilty to supplying cocaine to an undercover reporter.
The rapper known as Mike GLC admitted to supplying the Class A drug when he appeared at London's Southwark Crown Court alongside the former N-Dubz star Tulisa Contostavlos.
Bailing Coombs, Judge Alistair McCreath told the rapper he would be sentenced at the end of Contostavlos' trial. He said: "Michael Coombs, I'll sentence you at the conclusion of the proceedings against your co-defendant, whatever that conclusion may be.
"In the meantime I'll permit you to keep your bail, but you must understand that that consists of no sort of indication as to what sentence you'll get at the end of it. On that understanding you may go".
Michael Coombs, known as rapper Mike GLC, has pleaded guilty at Southwark Crown Court to supplying cocaine to an undercover reporter from the Sun on Sunday.
Former X Factor judge Tulisa Contostavlos, who is due to stand trial, denies being concerned in brokering the drug deal.
Former X Factor judge Tulisa Contostavlos is due to go on trial today accused of helping to broker a cocaine deal with an undercover tabloid reporter.
The former N-Dubz star, 26, is charged with helping the Sun on Sunday's Mazher Mahmood, the reporter dubbed the "fake sheikh", land 0.5oz of the Class A drug for £860.
She denies the charge but will be tried at Southwark Crown Court in south London alongside co-defendant Michael Coombs.
The 35-year-old Coombs, also known as rapper Mike GLC, denies a charge of supplying the drug on May 23 last year at London's Dorchester Hotel. Both are on bail.
Former X Factor judge Tulisa Contostavlos must wait more than a month to discover the outcome of her trial over claims she assaulted a celebrity blogger.
Writer Savvas Morgan claims he suffered swelling to his eye after an alleged incident involving the 25-year-old at the V-Festival in Chelmsford, Essex, last year.
N-Dubz star Tulisa denies the assault but her and her assistant Gareth Varey, who faces the same charge, must wait until July 2 for the verdict after a judge adjourned the case so that further witnesses can be called.