A film version of J.R.R. Tolkien's The Hobbit may be made without director Peter Jackson because of a dispute over profits from the Lord of the Rings films.

New Line Cinema, which owns the rights to The Hobbit, told Jackson they would not be using him, according to a letter Jackson and partner Fran Walsh posted on the internet.

Peter Jackson accepts the Oscar after the film The Lord of the Rings: The Return of the King won for best motion picture. Jackson posted a letter on a Lord of the Rings fan site saying he won't be making the planned film version of The Hobbit.
(Associated Press)

At issue was an ongoing legal dispute over profits from the trilogy, which generated nearly $3 billion US in theatres around the world. Jackson has accused New Line of improper accounting practices in calculating profits and refused to sign on to do the film until the dispute is settled. His lawyers told the New York Times earlier this year the discrepancy could be worth as much as $100 million.

And according to Jackson, New Line claims they needed to move on the project soon before their rights to The Hobbit expire.

"This outcome is not what we anticipated or wanted, but neither do we see any positive value in bitterness and rancor," they wrote. "We now have no choice but to let the idea of a film of The Hobbit go and move forward with other projects."

A spokesman at Jackson's Wingnut Films confirmed the authenticity of the letter.

Jackson became revered among fans of Tolkien's fantasy trilogy for managing to adapt the books for the screen. The third film, The Return of the King, won 11 Academy Awards including best picture and best director for Jackson.

New Line also had plans to make a second unnamed prequel to the Lord of the Rings trilogy after The Hobbit, and Jackson had been tabbed as director.

But the decision may not be as open and shut as the director writes. For while New Line owns the rights to produce the film, the distribution rights are owned by MGM, which has said in recent weeks it is committed to The Hobbit with Jackson at the helm.

A spokesman told Variety on Monday "the matter of Peter Jackson directing The Hobbit films is far from closed."

With files from the Associated Press