Filming has started on director Peter Jackson's production of The Hobbit in New Zealand.

The $500m, two-movie production has suffered from a series of problems including studio funding problems, a threatened actors' boycott and ulcer surgery for Jackson.

The director posted a studio press release on his website announcing that production has commenced in New Zealand on the much-anticipated project.

British actor Martin Freeman will star as hobbit Bilbo Baggins alongside Elijah Wood, Sir Ian McKellen, Cate Blanchett and Orlando Bloom in twin movies of JRR Tolkien's fantasy novel about a short, hairy-footed hero.

The Hobbit is a prequel to The Lord of the Rings trilogy by Tolkien that Jackson led to blockbuster film success.