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A rep for O'Toole tells us the actor passed away at a hospital in London surrounded by friends and family ... and says Peter had been ill for some time.
Peter had been in countless films -- including "Lawrence of Arabia", "Goodbye, Mr Chips" and "Venus" -- and holds the record for most Oscar nominations without ever winning.
He was given an honorary Academy Award in 2003 to make up for it.
Peter retired from acting last year saying he no longer had the heart for it.
Peter's daughter Kate released a statement saying, "His family are very appreciative and completely overwhelmed by the outpouring of real love and affection being expressed towards him, and to us, during this unhappy time."
Kate adds, "Thank you all, from the bottom of our hearts. In due course there will be a memorial filled with song and good cheer, as he would have wished."
He was 81.
