We propose a novel framework COLLAGE for generating collaborative agent-object-agent interactions by leveraging large language models (LLMs) and hierarchical motion-specific vector-quantized variational autoencoders (VQ-VAEs). Our model addresses the lack of rich datasets in this domain by incorporating the knowledge and reasoning abilities of LLMs to guide a generative diffusion model. The hierarchical VQ-VAE architecture captures different motion-specific characteristics at multiple levels of abstraction, avoiding redundant concepts and enabling efficient multi-resolution representation. We introduce a diffusion model that operates in the latent space and incorporates LLM-generated motion planning cues to guide the denoising process, resulting in prompt-specific motion generation with greater control and diversity. Experimental results on the CORE-4D, and InterHuman datasets demonstrate the effectiveness of our approach in generating realistic and diverse collaborative human-object-human interactions, outperforming state-of-the-art methods. Our work opens up new possibilities for modeling complex interactions in various domains, such as robotics, graphics and computer vision.