Two films based on the Hobbit by JRR Tolkien will be made in New Zealand the country’s prime minister has confirmed.

The announcement follows lengthy talks between Hollywood executives and the local government whether the Lord of the Rings prequels should be shot in the country.

Director Peter Jackson filmed all three original movies in New Zealand

All three of the Lord of the Rings films were made in New Zealand, but Warner Bros and New Line had considered taking the production elsewhere after acting unions threatened to boycott the films in a row over wages.

However, following talks prime minister John Key said: “My government is determined to use the opportunity that the Hobbit movies present to highlight New Zealand as a great place to visit, as well as a great place to do business.”

He added: “I am delighted we have achieved this result. Making the two Hobbit movies here will not only safeguard work for thousands of New Zealanders, but it will also follow the success of the Lord of the Rings trilogy in once again promoting NZ on the world stage.”

The films will be directed by Peter Jackson, a native of New Zealand.

Filming on the two-part prequel is set to begin in February with British actor Martin Freeman taking the lead role of Bilbo Baggins.

As part of the arrangement to secure the films the New Zealand government will introduce legislation to clarify the distinction between independent contractors and employees working in the film production industry.

“The industrial issues that have arisen in the past several weeks have highlighted a significant set of concerns for the way in which the international film industry operates,” Mr Key told reporters on Wednesday.

“We will be moving to ensure that New Zealand law in this area is settled to give film producers like Warner Bros the confidence they need to produce their movies in this country.”

New Zealand Tourism

New Zealand Tourism celebrated the decision.

General manager for public affairs at NZT Suzanne Carter said: “We are absolutely thrilled with the outcome of these negotiations.

“The Hobbit provides us with another great opportunity to promote New Zealand to the world in a unique way and to raise awareness of New Zealand as a visitor destination.

TNZ this week released figures showing in the year to March 2010 tourism was New Zealand’s biggest foreign money earner, earning more than the dairy sector and worth NZ$9.5 billion.

“The Lord of the Rings films presented New Zealand to the world in a truly spectacular way,” continued Ms Carter.

“From a tourism perspective the flow on effects of these films reach communities across the country with visitors coming to enjoy our unique scenery and lifestyle and using our tourism services as they travel.”

“People are still travelling to New Zealand today because of the exposure gained through the Lord of the Rings trilogy and the Hobbit will provide another much-needed boost to our billion dollar tourism industry.”

She added: “As with the Lord of the Rings trilogy, TNZ will be looking at every opportunity to leverage the profile of the Hobbit to promote New Zealand.”