Government ministers are happy to play a facilitation role between actors and Sir Peter Jackson to resolve their dispute over work on The Hobbit, Prime Minister John Key says.

Progress over the weekend appears to have diffused tensions which have seen Sir Peter warn his Hobbit production could be moved to another country.

Mr Key told Breakfast on TV One today that there had been "tentative discussions" with ministers, including Minister for Economic Development Gerry Brownlee.

"We are happy to facilitate, play a facilitation role between the two parties if we need to. I understand they are making some progress so hopefully they can get it resolved. But I would be very, very concerned if it moved offshore."

Mr Key said there may be a wider argument to be had but the Hobbit production should not be held to ransom.

"I would be greatly concerned if the Hobbit movies weren't made in New Zealand, this a $3 billion industry, it employs a lot of people, it's great for New Zealand it's a great way for marketing New Zealand. If you can't make the Hobbit here frankly what movies are you going to make here?"

The New Zealand Actors' Equity union yesterday said it was "hopeful" the spat could be resolved.

That followed a Hollywood press report that the dispute over terms and conditions on the planned Hobbit film was close to being sorted out.

"We remain hopeful that a resolution can be reached," Equity organiser Frances Walsh said when asked to confirm the report, in the Los Angeles Times.

Council of Trade Unions president Helen Kelly also declined to confirm the report but had met Sir Peter and his film-maker wife, Fran Walsh, on Friday in an attempt to resolve the dispute over better employment terms and conditions for actors on his planned two-part adaptation of the J.R.R. Tolkien book.

"We are hopeful that a meaningful dialogue between (Actors') Equity, Spada (the Screen Production and Development Association) and Three Foot Seven (Sir Peter's company) can be established."

Actors' Equity has been trying to meet the film's producers but has until now been rebuffed by Sir Peter, who said through a spokesman on Friday that the Hobbit could not set a precedent that would affect everyone else in the New Zealand film industry.

Sir Peter has warned the film could be taken to Eastern Europe, accusing Australian-based union Media, Entertainment and Arts Alliance, which is backing the NZ union, of "bullyboy" tactics after its call for actors worldwide to boycott the Hobbit.

But the LA Times has reported that the dispute was "close to being resolved", citing anonymous sources which say production could begin as early as January for a 2012 release.

Spada has said a collective agreement sought by the union was illegal as the actors were taken on as independent contractors rather than as employees.