Kevin Costner has confirmed that the late Princess of Wales was set to star alongside him in a sequel to 1992 hit The Bodyguard, in which he starred as an agent assigned to protect a pop star played by Whitney Houston.

Speaking to PeopleTV, Costner said that he, Diana and producers were eager to get the project off the ground.

“The studio liked the idea of doing a Bodyguard 2,” he said, with Diana taking on a role “in the same kind of capacity as Whitney. Nobody really knew that for about a year.”

In 2012 Costner first spoke about the project, explaining that the plot would have involved his character protecting Diana’s from stalkers and paparazzi before their relationship turned romantic. He said a first script for the project arrived on his desk the day before Diana was killed in a car crash on 31 August 1997.

Speaking to People, Costner recalled that he and Diana had discussed the film, in particular the possibility of intimate scenes.

Diana, Princess of Wales and Sarah Ferguson on a skiing holiday. Photograph: Tim Graham/Getty Images

“I just remember her being incredibly sweet on the phone, and she asked the question, ‘Are we going to have, like a kissing scene?’” Costner recalled. “She said it in a very respectful … she was a little nervous because her life was very governed. And I said, ‘Yeah, there’s going to be a little bit of that, but we can make that OK too.’”

Costner, 64, said talks had been initiated by Sarah Ferguson. “Sarah was really important,” he said. “I always respect Sarah because she’s the one that set up the conversation between me and Diana. And she never said, ‘Well, what about me? I’m a princess too.’ She was just so supportive of the idea.”

The Bodyguard took $411m (£326m) at the box office on release, making it the second-highest grossing film of 1992, while its soundtrack is still the bestselling of all time, with 45m copies sold. The movie marked the acting debut of Houston, whose character is under threat from an unknown stalker.

Costner played a former Secret Service agent who is hired to protect her before the pair fall in love. The film, which was not well received by critics, was turned into a stage musical in 2012, and is still running in London’s West End.

Houston died suddenly in 2012, drowning in the bath after a long history with drink and drugs.