Peter Jackson has threatened to move the entire production of The Hobbit, his planned two-part prequel to The Lord of the Rings, to eastern Europe following a union boycott.

Australia's Media Entertainment and Arts Alliance (MEAA) has called on actors to snub the films, claiming Jackson and studios New Line and MGM are offering non-union agreements with no guaranteed minimum payments or conditions. The union has the support of US and UK acting counterparts, and claims to have the backing of cast members Sir Ian McKellen, Hugo Weaving and Cate Blanchett.

Jackson, who is from New Zealand, angrily condemned the boycott, calling the union an "Australian bully boy", and claiming its agenda was "based on money and power". He warned the action might scare Hollywood film-makers away from New Zealand and leave the country humiliated on the world stage.

"It feels as if we have a large Aussie cousin kicking sand in our eyes ... or to put it another way, opportunists exploiting our film for their own political gain," wrote Jackson in a lengthy statement. "They want greater membership since they get to increase their bank balance. If The Hobbit goes east – eastern Europe in fact – look forward to a long, dry big-budget movie drought in this country."

The director said he was not anti-union and had "always attempted to treat my actors and crew with fairness and respect". He pointed out that Hobbit actors with no union representation were part of a profit-sharing pool.

The Hobbit films were due to be filmed in New Zealand, where sets from the production of the Lord of the Rings remain. The Australian union is involved because it is allied with a New Zealand actors' union, NZ Actors' Equity. Jackson claims the latter represents at most 200 of an estimated 2,000 actors based in the country.

The boycott is the latest in a long line of problems to hit The Hobbit's production. Jackson was originally on board as executive producer and screenwriter, but is now expected to direct, following the departure of Mexican film-maker Guillermo del Toro. The latter walked out after three years of preparatory work, including a large hand in the screenplay, because the project had not yet been given a start date due to ongoing financial travails at MGM.

MEAA members are set to meet in Auckland tomorrow to discuss the boycott.