Luang Prabang, Laos -

uang Prabang airport's tiny landing strip would fit inside many a mall parking lot. The terminal resembles a small municipal office built to process meaningless administrative documents rather than a rising volume of tourist passports.

Inside, courteous staff wearing pressed green military uniforms sit behind carved-wood customs booths, directing operations with an unflappable assuredness unrecognisable to most international travellers. Above the visa desk, a small typed note apologetically informs me that I must pay a one dollar surcharge for arriving 'on a weekend or an official day off.' A fuzzy calmness seeps into me.

Less than 30 minutes later – following a taxi ride in the back of a covered Hyundai pick-up truck – I am sat in a wicker rocking chair on my hotel balcony, staring out across the mighty brown waters of the Mekong river. On the table, a dark muddied stain sits around the rim of a white porcelain cup of rich Lao coffee.

Directly below me, a terracotta tiled terrace gives way to racks of rice cakes drying in the sun, a jumble of banana trees and moored boats, where local fisherman are inspecting their catch. Across the river, meandering forest-clad hilltops are dotted with white pagodas and small villages. Slightly downstream, a small dry-season islet in the river has been turned into a football pitch by schoolchildren playing in late-afternoon sun. I love this place already.

Auberge Le Calao, a small hotel whose arched second-floor balconies offer the best Mekong views in town, symbolises Luang Prabang's 21st-century tourism renaissance. UNESCO World Heritage-listed in December 2005, this gloriously picturesque town is wedged into a corkscrew-shaped peninsula bordered by the Mekong and Nam Khan rivers and flanked by valleys and limestone cliffs. Largely traffic-free, its two mini rush hours occur early morning and late afternoon, when jeeps carry tourists to and from nearby attractions: caves, whisky factories, whitewater rafting centres, elephant sanctuaries and indigenous tribal villages. For the rest of the day, visitors wander aimlessly among its royal palaces, wats and markets stopping to photograph the saffron-robed monks and eat lunch under the shady tree canopy of a riverside cafe.

Ten years ago, however, this city had no electricity, running water or roads to speak of. Emerging from the turbulent years of French colonial rule and destructive raids by neighbouring armies, Laos suffered a sustained and vicious US aerial bombardment; a nasty and largely secret side project to the Vietnam War. In 1975, the insular, inward-looking Lao People's Democratic Republic was established with its capital in southern Vientiane. As the traditional seat of the Lao Royal Family, Luang Prabang – along with its historic temples, shrines, monasteries and colonial French villas – was left to decay.

In 1993, the century-old Portuguese-style river front mansion in the heart of old Luang Prabang was overgrown and derelict. Its signature arched balconies were crushed, the roof caved in. After two years of painstaking renovation, it opened in 1996, shortly after Luang Prabang received UNESCO protection. Today, Auberge Le Calao's simple, yet comfortable, creme-washed rooms cost from USD 60 a night. Unfailingly polite, the staff are eager to practice English with the foreign visitors who book out the hotel months in advance.

To the left, right and rear of the hotel, I discovered scores of similarly historic villas, as well as beautiful Lao-style wooden homes in small ban neighbourhoods that pre-date French rule. That first afternoon, during a short stroll to the town's main street, I experienced wild boar fricassee with Luang Prabang mushrooms and roasted potatoes at L'Elephant, gorgeous silk garments and furnishings at OckPopTok Gallery, natural soaps and cosmetics at Ban Lao and an avant-garde exhibition by a resident French photographer. I was offered a pre-happy hour mojito at an open-fronted sidestreet bar and picked up a copy of Sayo Laos, a local magazine stuffed with glossy articles, photo shoots and adverts about upscale stores, hotels, eateries and spas.

For a small town, Luang Prabang punches well above its weight in style circles. It has two hotels – The Apsara and Satri House – featured in Herbert Ypma's trendsetters' bible: HIP Hotels Orient, the same number as China, Bhutan, Japan, Sri Lanka and Vietnam. Ypma himself describes Luang Prabang as "the traveller's fantasy of a perfect town in the tropics of the Far East, an exemplary piece of unspoilt Southeast Asia."

Even a cursory browse about town reveals several other small hotels that would meet the strict HIP standards, notably Maison Souvannaphoum, opened in 2005 by Banyan Tree's affiliate brand, Colours of Angsana. Formerly home to a prince, the manicured grounds, whitewashed exterior and Angsana Spa retain a distinct royal grandeur and ambience of exclusivity.

Cast aside its pristine natural setting and historic charms, though, and a significant part of Luang Prabang's magnetism lies in the absence of chains and branding. Though several of the town's hotels, restaurants and boutiques have the same owners, most are privately run as small enterprises and creativity is the watchword. Even the most hard-bitten traveller must smile at the innocence of handicraft boutiques that feature photos of Mick Jagger and Kylie Minogue during their visits, or a restaurant that counts British TV chef Jamie Oliver among its recent Lao cookery class students.

British-born Ivan Scholte is a prominent figure in 'new' Luang Prabang. Having lived in Asia for several years, he arrived in Laos in 2000, still harbouring a long-cherished dream to own a small hotel and restaurant. There were no direct flights, only a couple of decent hotels and one proper French restaurant in Luang Prabang back then. Backpackers venturing off the tried-and-trusted Southeast Asia trail comprised the town's clientele. Yet, he spotted an opportunity.

Scholte took over an old guesthouse on the banks of the Nam Khan river and hired a Bangkok-based interior designer. Between them, they created Luang Prabang's chicest address, The Apsara – named after the Cambodian maidens carved into the gallery walls at Angkor. Confident, sophisticated and elegant, the rooms blend hand-died natural fabrics with dark wood floors and furnishings. The trump card, however, is the restaurant, a cool melange of white walls, Chinese lanterns, Lao antiques and furniture and modern Euro-Asian cuisine. It would work equally well in New York's Soho or Cannes' La Croisette.

"Luang Prabang has changed quite considerably," says Scholte. "The roads have all been re-laid in the past four years and quite a few of the old buildings have been restored." The main change Scholte has noticed, however, is the increased spending power of visiting tourists. "Before, the backpacker crowd made up the majority of the visitors. Since Bangkok Airways started coming here, the change has been considerable," he says.

More visitors with more money is great news for Luang Prabang's tourism-fuelled economy. Yet, to the outsider, the town's physical makeover, 'darling destination' status in the glossy style monthlies and proliferation of fine restaurants and hotels looks dangerously like crossing the Rubicon from humble idyll to 'boutique' destination. Certainly not, says Scholte. "It's a dreadful expression. I don't like it even for hotels. Even the airline flying from Bangkok to Luang Prabang is 'boutique', whatever that is supposed to mean."

Scholte believes that Luang Prabang's endless fascination is that, unlike some UNESCO World Heritage sights, it is a living, working town. "There's always something to do and see, from the monks seeking alms at dawn, to bargaining at the open air Hmong markets to watching women embroidering and weaving," he says. "Or you can just wander slowly along the side streets and through the temples."