Annual $45,000 prize for playwrights in honour of Philip Seymour Hoffman will be funded by magazines which falsely reported that Hoffman had a gay affair with a friend

An annual prize will award $45,000 to a playwright in honour of Oscar-winning American actor Philip Seymour Hoffman, who died this month from a suspected heroin overdose.

The prize is being funded by magazine The National Enquirer and its publisher, American Media Inc, which falsely reported that Hoffman had a gay affair with a friend.

The friend, David Katz (who is himself a playwright), came up with the idea after settling a libel case over the article, his lawyer Judd Bernstein told AFP.

The newly created American Playwriting Foundation is likely to award the first prize for an unproduced play this year, he said.

The New York Times, which broke the story, said the prize would be called the Relentless Award, in Hoffman's honor.

The libellous article was published on February 5, three days after Hoffman was found dead in his New York apartment after failing to meet his girlfriend and their children.

It claimed to quote Katz as saying he and Hoffman were lovers who took cocaine, and that Katz saw him using heroin many times.

Katz denies ever speaking to the magazine and says Hoffman never used drugs in his presence, The New York Times reported.

The Enquirer has since withdrawn the article.

It will also buy a full-page advertisement in Wednesday's edition of The New York Times to apologise.

"The money that's being paid by the Enquirer will fund the $45,000-a-year prize for many years to come," Bernstein told AFP.

"Since Mr Katz didn't want money we both agreed the answer was to force The Enquirer to pay money that could be used in a positive way and then the idea of the actual foundation was Mr Katz's."

Katz told The New York Times he wanted a meaningful settlement.

"We had talked so often that it's a tragedy playwrights can't survive being playwrights - about how nice it would be if you could make your rent and still have an occasional steak," he said.

Forty-six-year-old Hoffman was hailed by many as the finest character actor of his generation.

He won an Oscar in 2006 for his portrayal of author Truman Capote in "Capote" and earned three further Academy Award nominations as best supporting actor in 2008, 2009 and 2013.