It's the Lord of the Lakes

Sir Peter Jackson has raised the ire of neighbours by starting work on a second lake at his fairytale Wairarapa estate.

The multi-millionaire filmmaker has consent to dam tributaries of the Waipoua River - a move environmentalists say will help local flora and fauna.

But some of his neighbours aren't happy with the disruption.

The $10 million property has undergone extensive development since Jackson and wife Fran Walsh bought it in 1998.

A two-towered mansion, complete with indoor pool and 100-seat cinema, is linked to the rest of the property by a full-size railway.

Jackson has also put in a golf course and pieces from the Lord of the Rings set, including Frodo's home, Bag End.

Locals said the work had created jobs and raised property values - but some just wanted peace and quiet.

"It's been a bit of a hassle for our lifestyle for the past seven or eight years," said one.

"We've been used to hardly any traffic, and then suddenly it's going berserk."

The neighbour, who wouldn't be named, said things were quieter since major building work finished about two years ago.

He didn't object to the new lake, and guessed it was designed to irrigate Jackson's golf course.

"It's just that it's been a bit of a pain in the arse for quite a while," he said.

Another neighbour said the new lake site could be seen from the road and looked "a mess".

"But that's a construction site and no doubt it'll look nice when it's finished. As long as he keeps it nice and tidy, and adds value to our property, we don't mind."

He said Jackson and his partner Fran Walsh were never spotted around the neighbourhood, and nor were famous house guests, said to have included Sir Ian McKellen and Tom Cruise.

But rubberneckers were often seen straining for a glimpse of the mansion and Lord of the Rings sets.

Jackson has staunchly defended his privacy at home, planting pines along the boundary to block neighbours' views.

His spokesman said he had nothing to say about the property, because it was a private residence and matters relating to it were private.

Aalbert Rebergen, the Lower North Island field officer for Forest and Bird, said the lake wouldn't harm the environment and may improve it.

He understood the plan was to dam minor tributaries.

"They're not even permanent flows, they're only small and have a very small catchment," he said.

"There's really not any damage being done ... because the lake is probably going to have some value for water fowl and flora."

The property's rateable value has doubled in the past six years to $10m, made up of $1.4m for the land and $8.6m for improvements.

Meanwhile, Jackson's film company has denied reports that filming for The Hobbit will start in July.

Sir Ian, who will play Gandalf in the two prequels to The Lord of the Rings trilogy, said in a post on his website that the year-long shoot was to start in New Zealand in July.

The post was reported around the world, but Wingnut Films spokesman Matthew Dravitzki said no date had been set.

"There's a lot of speculation and rumour surrounding this project - and that's all it is."

An official announcement would be made later this year, he said.