The disgraced author of A Million Little Pieces has been rehabilitated with a new book contract despite confessing that he fabricated parts of his bestselling memoir of drug addiction and redemption.

James Frey’s next book will be a “kaleidoscopic” novel about modern-day Los Angeles titled Bright Shiny Morning — and this time it will be marketed as fiction.

“I’m very happy for James. It’s a fresh start,” said Nan Talese, who published the discredited memoir at her imprint at Doubleday, provoking a class action lawsuit from outraged readers.

A Million Little Pieces surged to the top of bestseller lists in 2005 when Oprah Winfrey picked it as the first non-fiction work for her influential book club, calling it “a gut-wrenching memoir that is raw and so real”.

The book purported to recount Frey’s descent into drug addiction and prison and his subsequent redemption.

The former screenwriter wrote a second memoir, My Friend Leonard, that also became a No 1 bestseller.

America’s literary world was rocked by the revelation that A Million Little Pieces contained wild exaggerations — news that broke at the same time that J. T. Leroy’s autobiographical novels about his upbringing as an HIV-infected boy prostitute were exposed as a hoax.

The Smoking Gun, an investigative website, unearthed police records showing that Frey had wildly embellished his supposed criminal career, jail terms and status as an outlaw “wanted in three states”. The investigation contradicted the writer’s claim to have served a three-month prison sentence for possession of crack cocaine, incited a riot, and assaulted a police officer in Ohio with his car.

The 1992 police report, discovered by the website, said that Frey was found drunk in his car without a driving licence but did not have any crack, or assault the police, or spend three months in prison. “He was polite and co-operative at all times. He was later released on $733 cash bond,” it says.

Opray Winfrey declared that she had been “duped” and grilled him on her television programme. Frey was contrite and promised to add a disclaimer to later editions of the book to acknowledge that parts were made up.

The author was dumped by his literary agent and Riverhead Books, which published My Friend Leonard, cancelled a two-book deal worth a reported seven figures that included Bright Shiny Morning.

Doubleday’s parent, Random House, facing a class action suit, agreed to refund readers who bought A Million Little Pieces. Since his public shaming, Frey, who now lives in New York, has stayed out of the headlines as he works on the new novel.

But readers remain fascinated by A Million Little Pieces, which continues to sell at least 1,000 copies a week, according to Nielsen BookScan. The Library Journal ranks it the No 11 non-fiction book most borrowed in US libraries.

Frey, 38, got a new agent this year when he met Eric Simonoff at a dinner party for the Indian novelist Vikram Chandra, whom he also represents.

HarperCollins, which is owned by the same company as The Times, said that it would publish Bright Shiny Morning next summer. The book is understood to follow the lives of a collection of Los Angeles characters, ranging from a male movie star to a Mexican maid and a homeless man from Venice Beach.

Jonathan Burnham, HarperCollins publisher, called Frey “an immensely talented writer who has written a truly extraordinary and original novel, one of great breadth and ambition”. Mr Burnham conceded that he would have felt differently had Frey written another memoir, but said he remained a great admirer of A Million Little Pieces. “Whatever view one might hold of what happened with that book, I was deeply struck by the writing,” he said.

Explore Books

• Book Extracts

• Book Reviews

• Books Group

• Audio Books

Times Recommends

• The 100 Best Books of the Decade
• The Times picks the 50 best paperbacks of 2009
• The conversation: James Ellroy