Renowned actor Sir Ian McKellen will return in the role of Gandalf for two big-budget movies based on the JRR Tolkien book The Hobbit, the films' director Guillermo del Toro confirmed on Sunday.
Both movies would be filmed entirely in New Zealand, where the Oscar-winning Tolkien Lord of the Rings trilogy was shot.
Mexican film-maker del Toro and the Hobbit films' executive producer Peter Jackson released details of the latest project during an hour-long live Internet chat with fans.
Del Toro said Lord of The Rings stars McKellen and Andy Serkis (Gollum) would return for the Hobbit films but actors for new characters were not yet decided.
Jackson said Hobbiton would be rebuilt "bigger and even better than it was" in Lord of the Rings.
"It is unlikely we will need any locations outside of New Zealand which has always been the perfect Middle Earth," Jackson said.
"There is nothing yet that Tolkien has described that we haven't managed to find in this amazing little country and I expect The Hobbit to be no different."
Del Toro was confirmed as director last month after the project was given the go-ahead when Jackson and Hollywood studio New Line ended a lengthy quarrel over dividends from the Lord of the Rings series.
The trilogy brought in nearly $3 billion in global box office takings, not counting DVD sales, and the movies won 17 Oscars between them.
In 2004, the final installment The Return of the King was awarded the best picture Oscar, the first time ever that a fantasy film won the award.
The Hobbit is set in Middle Earth and is a prelude to the Lord of the Rings trilogy.
The book tells the story of how the hobbit Bilbo Baggins sets off on a quest accompanied by 13 dwarves and Gandalf the wizard to confront a dragon.
Pre-production work on the films will begin in 2009 and the films will be shot back-to-back, beginning in 2010. The Hobbit is set to be released in December 2011 and the second as yet untitled film in December 2012.