Ian McKellen is loud and proud about being gay, but he admits to finding Cate Blanchett irresistible on the set of The Hobbit: An Unexpected Journey.
At one point Hobbit director Peter Jackson asked his two stars whether they were having an affair.
"She's in love with me," McKellen joked to AAP.
McKellen, a 73-year-old two-time Oscar nominee, reprises his role of wizard Gandalf the Grey in The Hobbit and Blanchett returns as Galadriel the royal elf.
The two never met during the marathon three-film shoot of The Lord of the Rings a decade ago.
But, in The Hobbit, set 60 years before the Lord of the Rings storyline, McKellen and Blanchett share a romantically-charged scene.
"We were chatting about the business of theatre and putting on plays and so on, and became really good friends," McKellen said.
"Then this scene came up that you could tell would be rather romantic in the finished version with a beautiful river around us.
"We just kept looking at each other and being glad to be in each other's company.
"Is that falling in love? Sort of.
"There's a moment she just moves a bit of my hair, which I think was as much Cate as Galadriel. Peter, alert and watching with 3D glasses on, said 'Are you two having an affair?'
"I said 'Well, why not?'."
McKellen and Blanchett have ties to New Zealand for at least the next two years, with the next two movies of The Hobbit trilogy set to be released in 2013 and 2014 respectively.
Despite The Lord of the Rings trilogy earning a combined US$3 billion at the global box office and 17 Oscars, there were many times in recent years it appeared the movies would not be made.
Grand old Hollywood studio MGM held some of the rights to The Hobbit, but financial difficulties meant it was unable to finance the project.
For more than two years McKellen and other cast members were left wondering if the films would be made.
McKellen said the rollercoaster was too much and he began to decide in his mind it would not happen.
"I had to buffet myself against the possibility it wouldn't happen so I drew up all of the negatives of the job which was: living away from home for such a long time; my age is where years and months are precious and do I want to go back and do a job I have already done?" he said.
"Peter accommodated me with that by letting me come back to the UK and do a play.
"I did a solo one man show in New Zealand. So I felt there was some new artistic input."
McKellen said in the end he enjoyed his return to the role of Gandalf.
"It's a bit like going home."
McKellen, born and raised in the north of England, said while growing up he found acting was a way to "express yourself and show the particularity of your emotions".
But it wasn't until his 1989 decision to publicly announce he was gay that he felt free.
"As an actor I could be truthful about my emotions in a way in life I wasn't allowed to," he said.
"My friends say that when I finally came out and said I was gay, my acting improved and I think it did.
"There were emotional blocks here (points to his chest) which I hadn't been aware of and I physically felt it go."
The Hobbit: An Unexpected Journey opens in New Zealand on December 14.