The Hobbit: Filming Begins!

The shire is built, the Hobbits have arrived, and production of one of the biggest films ever to be made in New Zealand is set to begin tomorrow.

After a torrid few weeks at the end of last year when a spat between director Sir Peter Jackson and the New Zealand actors' union threatened to drive the film overseas, filming will now start on The Hobbit – the two-part prequel to the Lord of the Rings trilogy.

The stoush last year resulted in Prime Minister John Key announcing that the government would make concessions to filmmakers Warner Bros, including a change to labour laws clarifying the status of film workers as contractors.

Overseas media have described The Hobbit as possibly the biggest movie franchise ever and Key said last year the amount being spent on the films was "off the scale", even for Hollywood.

Sets have again been created at a sheep and beef farm near Matamata and other, as-yet to be announced, locations around New Zealand will be used during the more than year-long filming.

Several of the stars of the film are already in the country, including English actor Martin Freeman who will play Bilbo Baggins. Three of Jackson's favourite actors will return to play alongside Freeman, including Sir Ian McKellen as Gandalf and Elijah Wood as Frodo.

Matt Dravitzki, Jackson's assistant at Wingnut Films told the Sunday Star-Times: "We are very excited to be starting production. We will be shooting right through this year and into 2012. We will be filming in our studios in Miramar, Wellington, and in locations throughout New Zealand, but I can't reveal those at the moment."

The Miramar studios are also the base for Weta Studios which will create the costumes, models and props for the films.

Dravitzki said Jackson's health was "good" after a scare earlier this year resulted in his undergoing surgery for a perforated stomach ulcer. "We are all raring go to go."

In an earlier media release Jackson said: "Despite some delays we are fully back on track and very excited to get started."

The production is set to be a boon for the film industry in New Zealand. Actors Equity spokeswoman Frances Walsh said: "We are very glad [the production] has stayed in New Zealand. We were very conscious of the need for that to happen so it's great news.

"We want the industry to be a flourishing one, and to do that it needs to be a combination of these very big international studio productions and local productions."