Show caption Guillermo del Toro said production delays had forced him to quit The Hobbit. Photograph: Miguel Villagran/AP Guillermo del Toro Guillermo del Toro quits as director of The Hobbit Setback for prequel to Lord of the Rings trilogy after shooting delays force director to abandon production Alexandra Topping Mon 31 May 2010 11.36 EDT Share on Facebook

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It was billed as cinema's next great tale, with a massive budget and build-up to match the Lord of the Rings trilogy. But The Hobbit, a two-part prequel to Peter Jackson's award-winning films, is in crisis after director Guillermo del Toro today said he was quitting the production.

The announcement follows a series of setbacks that have plagued the film since its inception and will come as a blow to Jackson, its executive producer.

The Hobbit has been beset with delays, with struggling Hollywood studio MGM yet to give it the green light.

Del Toro said in a statement: "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 . 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."

As the film moved further away from its original schedule, the director said he faced increasing demands from other projects.

"The blessings have been plenty, but the mounting pressures of conflicting schedules have overwhelmed the time slot originally allocated for the project," he told theonering.net, a Lord of the Rings fan website.

Last week Del Toro, who directed Pan's Labyrinth, Blade II and the Hellboy movies, revealed The Hobbit had not been given the go-ahead by MGM, which was last year rumoured to be on the brink of bankruptcy.

Speaking at a press conference on Friday for his latest production, Splice, Del Toro responded to questions about The Hobbit, saying the film did not have a start date for shooting, and that it would not until MGM sorted its financial troubles, according to Comingsoon.net.

"It's not greenlit," he said. "That's categorical. We've been caught in a very tangled negotiation. There cannot be any start dates until the MGM situation gets resolved. They do hold a considerable portion of the rights."

He said there was no predictable timeline for filming to start, adding that one possible outcome could see MGM sharing or selling off the rights.

In a statement Jackson said Del Toro would remain as a co-writer on the screenplay for The Hobbit with Jackson and his wife, Fran Walsh, and Philippa Boyens.

"We feel very sad to see Guillermo leave The Hobbit, but he has kept us fully in the loop and we understand how the protracted development time on these two films, due to reasons beyond anyone's control – has compromised his commitment to other long-term projects," Jackson said. "The bottom line is that Guillermo just didn't feel he could commit six years to living in New Zealand, exclusively making these films, when his original commitment was for three years."

Jackson said he would discuss options for a new director with MGM this week. "We do not anticipate any delay or disruption to ongoing preproduction work," he said.

Last month, Jackson dismissed rumours that The Hobbit movies had been delayed by production problems, insisting the project was still in its early stages.

He told Moviefone.com: "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."

There was a general feeling of dismay on the Lord of the Rings fansite. Ceti from "The Shire", commented: "Now, PJ can take the seat himself! I never saw him as the right man to do the job.