A close friend of Philip Seymour Hoffman is establishing a new theatre prize in memory of the late actor, funded by a legal settlement with The National Enquirer.

David Katz has set up the American Playwriting Foundation using money from an undisclosed settlement with the U.S. tabloid newspaper, according to a report in The New York Times that was accompanied by an apology from The Enquirer.

The tabloid said it "responsibly acknowledged its error" in the one-page Times ad, published Wednesday.   

Hoffman, the celebrated film and stage star, was found dead in his Manhattan flat earlier this month from an apparent drug overdose. Katz, his friend and a playwright, discovered the Oscar-winning, Tony-nominated star's body.

Days later, the Enquirer published a story purportedly based on an interview with Katz that suggested the two men were lovers and had taken drugs together.

Katz filed a libel suit and the tabloid quickly retracted its story, saying it had been duped by a person claiming to be Katz.

The new Hoffman prize, to be known as the Relentless Award, will award $45,000 US annually for a previously unproduced play that honours the late actor's "dogged pursuit of artistic truth."

Katz will preside over a four-member selection panel of theatre figures to choose each year's recipient.

With files from The Associated Press