Peter Jackson has settled a spat with his Lord of the Rings partner New Line Cinema, with the New Zealand director now set to produce a film adaptation of J.R.R. Tolkien's The Hobbit.

"I'm very pleased that we've been able to put our differences behind us, so that we may begin a new chapter with our old friends at New Line," Jackson said in a statement.

Peter Jackson won a best director Oscar in 2004, after completing his epic Lord of the Rings film trilogy.
(Associated Press)

"We are delighted to continue our journey through Middle Earth."

Jackson has signed on as executive producer of a two-part version of The Hobbit, with the pair of films to be shot simultaneously like the director's acclaimed epic The Lord of the Rings film trilogy.

Production on the LOTR prequel is slated to begin in 2009, with the films tentatively set to hit theatres in 2010 and in 2011. The films will be a shared project between New Line and MGM Studios (New Line Cinema owns the rights to produce the films, while Hollywood studio MGM owns distribution rights).

Despite the international success of the LOTR trilogy — which brought in nearly $3 billion US at worldwide box offices and dominated the Academy Awards in 2004 — Jackson and New Line developed a rift over the filmmaker's compensation for The Fellowship of the Ring, the first LOTR instalment.

In late 2006, the bitter battle became public, with Jackson filing a lawsuit against New Line and the studio announcing it would move forward with a planned film adaptation of The Hobbit without the Oscar-winning director.

Both sides said Tuesday they have also reached a settlement in the suit.

Jackson is not the only one to sue New Line over profits from the epic Middle Earth film trilogy.

Producer Saul Zaentz filed a new suit in Los Angeles last week, accusing the studio of hiding its profits, while 15 actors who appeared in the films also sued New Line in June, claiming they are owed a percentage of merchandise sales.

With files from the Associated Press