Talks calm New Zealand fears

His announcement followed two days of crisis talks with Hollywood studio executives over the fate of the 500 million dollar (315m) films.

Senior executives from Warner Bros. and New Line Cinema won an agreement for a change in labour law and bigger tax breaks to keep the project in New Zealand after a dispute over pay and conditions for actors threw the production into turmoil last week.

The studios had warned that unless the threat of industrial action was removed, production of the two films would be moved to another country.

The dispute became a national issue in New Zealand, which received a huge boost to its tourism and film-making industries after The Lord of the Rings film trilogy was made there.

Hundreds of people marched in several cities on Monday to show their support for keeping production in New Zealand.

The Hobbit is J.R.R. Tolkien's prequel to The Lord of the Rings.

Mr Key says the package includes an extra tax break of 20 million New Zealand dollars (9.5m) for the studios, on top of 45 million dollars (21m) already pledged by the government.

A labour law change will be put to Parliament on Thursday "to ensure New Zealand law in this area is settled to give producers like Warner Bros the confidence they need to produce their movies in New Zealand," he added.

The change – which applies only to the film industry – ensures actors and others will be hired as contract workers, a method often used by production companies, not as employees.

The union had wanted local actors and other production workers to be hired as fully-fledged employees on union contracts.

New Zealand will also contribute 7.5 million dollars (3.5m) to help with marketing costs of the two films.

"It's good to have the uncertainty (surrounding the movies) over and to have everyone now full steam ahead on producing these two movies," Key told reporters after two days of intensive talks in the capital, Wellington.

Economists have said the overall value of producing the films in New Zealand would add up to 2 billion dollars (940m) to the local economy –nearly two per cent of annual gross domestic production.

Comedian sued over filming

A cameraman is suing Sacha Baron Cohen, claiming he was "roughed up" by a crew filming the comedian's Bruno character at a gay marriage rally nearly two years ago.

The lawsuit filed by Mike Skiff, a self-described gay journalist in Los Angeles, seeks more than 16,000 in damages for alleged physical and emotional pain and suffering.

Mr Skiff said he recognised Baron Cohen during a pro-gay marriage rally in Los Angeles in November 2008.

He is claiming the crew was upset that he was filming the comedian.