Steven Spielberg is to end his brief $1.6 billion movie-making relationship with Paramount Pictures in a deal that will turn an Indian conglomerate into one of the most powerful forces in Hollywood.

The move represents a significant power-shift in the US film business and a daring leap for Spielberg, the highest-earning director of all time, known for such classics as Jaws, Raiders of the Lost Ark, and ET: The Extraterrestrial.

Coming after Oliver Stone used Chinese money to help finance W., his biopic of George W. Bush, it also demonstrates how Hollywood is looking for outsiders for financing now that the credit crisis has made it far more difficult to borrow money in the US.

Under the terms of the agreement, revealed last night in an official statement, Paramount will officially part ways with Spielberg's DreamWorks movie studio - responsible for animated blockbusters such as Shrek and live action movies such as Saving Private Ryan, before the company's animation division was spun-off into a public company in 2004 - and DreamWorks will instead create a new company with Reliance Entertainment, part of a Mumbai-based conglomerate with interests in everything from telecommunications to energy.

The new deal is thought to be worth about $1.5 billion.

Spielberg's long-time business partner David Geffen will not be part of the new company.

The separation comes only two years after Paramount acquired DreamWorks for $1.6 billion, demonstrating that business alliances in Tinseltown can be as fickle as celebrity marriages.

As part of the unwinding of its relationship with Paramount, DreamWorks will take control of some 15 projects still in mid-development, while Paramount will keep the right to co-finance and co-distribute. Paramount will maintain control over another 15 projects, with Spielberg able to co-finance only those to which he is 'attached' as director.

Most DreamWorks employees are expected to transferred to the new Dreamworks/Reliance joint venture, which aims to be established by January and make up to 35 films over five years.

It is thought that the final terms of the deal were negotiated at a meeting between Spielberg and Reliance's billionaire chief executive Anil Ambani last week. The new joint venture is expected to be headed by the current Dreamworks chief executive, Stacey Snider, who formerly chaired Universal Studios.

The deal makes Mr Ambani, 49, one of the most powerful tycoons in Hollywood.

Reliance's agreement with Spielberg comes after the company said was looking to put around $1 billion into eight production houses belonging to Hollywood stars such as Brad Pitt, George Clooney and Jim Carrey to make movies over the next two years.

Ambani, ranked the world's sixth richest man by Forbes, has been steadily building an entertainment presence after a highly publicised breakup with his elder brother Mukesh in 2005, in which the two carved up the Reliance empire.

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