New Zealand Prime Minister John Key, shown April 22, said his government will intervene to solve a labour dispute that could hold up The Hobbit films. (Associated Press)

New Zealand Prime Minister John Key has offered government mediation in an attempt to resolve a labour dispute that could hold up filming of Peter Jackson's The Hobbit movies.

Key said he is concerned New Zealand could lose the project if the pay dispute is not resolved.

Actors' unions have urged their members to boycott the film until a deal is struck for binding contracts for performers throughout the country's movie industry.

But Key urged the unions not to hold the Hobbit project to ransom, pointing out that the Lord of the Rings project both boosted the New Zealand film industry and led to a surge in tourism.

He says the government has had tentative discussions with those involved in the dispute in an attempt the break the impasse.

"I would be greatly concerned if the Hobbit movies were not made in New Zealand," Key said.

"This is a $3-billion industry. It employs a lot of people. It's great for New Zealand; it's a great way of marketing New Zealand."

Key says actors seeking industry-wide reforms over pay should hold discussions with New Zealand's Screen Production and Development Association instead of targeting Jackson's two-part saga.

"That's where the debate should be held, as opposed to specifically trying to hold to ransom one particular producer and one particular film," he said.

Jackson's adaptation of J.R.R. Tolkien's The Hobbit has yet to be greenlit by Hollywood studios, but the Los Angeles Times reported Sunday a deal for the project might be near.

Production of the first of two Hobbit movies could begin in mid-January for a holiday release in 2012.

But Jackson, who recreated Tolkien's Middle Earth to great acclaim in the Rings trilogy, has said his Hobbit may simply move to another location if the dispute cannot be resolved.

Jackson said the studios involved have already scouted out six different countries for potential locations and the decision might be taken out of his hands.