WELLINGTON, New Zealand – Cameras started rolling Monday on director Peter Jackson's production of "The Hobbit," following months of delays on the prequel to his Oscar-winning "Lord of the Rings" trilogy.

Hollywood studio funding problems, a threatened actors' boycott and ulcer surgery for Jackson have plagued pre-production on the $500 million, two-movie project.

The director posted a studio news release on his website Monday saying production has commenced in New Zealand on the much-anticipated project.

British actor Martin Freeman will star as hobbit Bilbo Baggins alongside Elijah Wood, Ian McKellen, Cate Blanchett and Orlando Bloom in twin movies of J.R.R. Tolkien's fantasy novel about a short, hairy-footed hero.

The films are expected to take up to two years to make, with the first timed for release in late 2012.

"The Hobbit" is a prequel to "The Lord of the Rings" trilogy by Tolkien that Jackson helmed to blockbuster film success in 2001-03, winning best-picture and best-director Oscars for the finale.

Jackson underwent surgery last month for a perforated stomach ulcer, pushing back the start of filming at least by several days.

Last October, New Zealand changed labor laws and tipped in extra tax breaks for Hollywood studios MGM and New Line Cinema to ensure the Hobbit films would be made in the country.

The changes mean actors and others working on the films will be hired as contractors not employees. The union had wanted local actors and other production workers to be hired as full-fledged employees on union contracts.

New Zealand received a huge boost to its tourism and film-making industries from "The Lord of the Rings" trilogy.

Freeman, whose films include "The Hitchhiker's Guide to the Galaxy" and "Hot Fuzz" but who may be best known from Ricky Gervais' "The Office" television comedy, has said playing Baggins is the role of a lifetime.