Director Guillermo del Toro's problems with the twin movies of The Hobbit hardened up last month with increased uncertainty over the future of MGM, the Hollywood studio backing the venture.
Del Toro today announced he was quitting the venture, being filmed in New Zealand with Wellington producer Sir Peter Jackson.
"MGM put the project, which was to have been two movies, in a limbo state," The Hollywood Reporter said on its website today.
"The producers had been hoping to be in production this summer but no green light was forthcoming."
Del Toro said today he was leaving the helm of the adaptation after two years, but will continue to co-write the screenplays with Peter Jackson, Fran Walsh and Philippa Boyens.
Reports emerged late last year that MGM was "teetering on bankruptcy" and del Toro said due to those issues the Lord of the Rings prequel had been caught in a 'tangled negotiation'.
"In light of ongoing delays in the setting of a start date for filming The Hobbit, I am faced with the hardest decision of my life," del Toro told the Lord of the Rings fansite TheOneRing.net.
"After nearly two years of living, breathing and designing a world as rich as Tolkien's Middle Earth, I must, with great regret, take leave from helming these wonderful pictures."
A spokesman for Hobbit producer and Lord Of The Rings director Sir Peter Jackson, Matt Dravitzki told NZPA del Toro would not be speaking to media today.
The announcement reflected Sir Peter and del Toro's "full sentiments at this time", he said.
Del Toro moved his wife and children to New Zealand for the shoot, and the first movie was aiming for a December 2012 release, but the Hollywood Reporter said the increasing uncertainty over the future of MGM and the films put pressure on del Toro, who had a laundry list of development projects outlined for the next decade.
"The mounting pressures of conflicting schedules have overwhelmed the time slot originally allocated for the project," del Toro said in his statement.
"Both as a co-writer and as a director, I wish the production nothing but the very best of luck and I will be first in line to see the finished product. I remain an ally to it and its makers, present and future, and fully support a smooth transition to a new director."
Today's announcement is seen as a blow not only to co-producers Jackson and Walsh, but to Wellington's Weta Digital and Weta Workshop businesses associated with Jackson, and the rest of the Wellington film-making community, which has been heavily reliant on big international moves for their revenue streams.
The Film Commission has paid out $1.2 billion in incentives to lure big-budget overseas projects since 2004.
Statistics collected before the global economic crash show spending in the Wellington region more than doubled from $128 million in 2007 to $285m in 2008 and the United States' contribution to New Zealand's screen production sector almost doubled to $481m.
Near Matamata, work on the Hobbiton set on Bucklands Rd was reported to be well advanced.
Sir Peter last month dismissed rumours The Hobbit had been delayed due to production problems -- insisting it was still in its early stages.
In April, he told Moviefone.com "Well, it's not really been delayed, because we've never announced the date. I mean it's sort of interesting because the studio has never greenlit The Hobbit, so therefore The Hobbit has never been officially announced as a 'go' project, nor have we ever announced a date."
Hollywood studio MGM was selling its film assets, including a stake in the two Hobbit movies and the James Bond franchise, The Daily Telegraph reported in England.
