Martin Freeman is back in negotiations to star in 'The Hobbit'.

The British actor was initially believed to have missed out on playing Bilbo Baggins in the film - production on which is currently suspended due to funding issues with studio MGM - because of his commitment to BBC series 'Sherlock'.

However, sources have told Entertainment Weekly New Line and MGM have now "come back to Freeman with a proposed schedule" allowing him to shoot both the sleuth series and the 'Lord Of The Rings' prequel.

Official details have yet to be announced due to the problems with MGM, but reports suggest the financing issues holding back production may be close to being settled due to the reopening of negotiations with Freeman.

An insider told The Sun newspaper earlier this week the 39-year-old was "agonised" by the decision.

The source said: "It was one of the most difficult decisions of his career, MGM, who are making the film, only got a formal offer over in the last couple of weeks.

"It was too late for Martin because he had already signed up for another series of 'Sherlock'. It was agonising but he had no other choice."

'The Hobbit' has seen a number of problems beset production - original director Guillermo Del Toro pulled out because of the continued Delays to the film and Sir Ian McKellen also revealed he would not "wait" around for the movie to start.