This is a place where taps aren't just gold, but encrusted with diamante; where a herd of gilded horse statues on your hotel forecourt is commonplace; where nobody thinks twice about carving the coastline into a map of the world, or building underwater hotels, revolving skyscrapers or office blocks shaped like iPods. In this city of architectural one-upmanship the irony is that nothing ever shocks you. Until now. Dubai's latest trend is truly bizarre: it is becoming tasteful.

OK, not entirely. The iPod's going up, the revolving skyscraper isn't far behind and the world's tallest building, the Burj Dubai, is still rising to its infamously unknowable final height (around the half-mile mark). The Dubai we love to mock is alive and well. But in the past year the city has been attracting not just commercial mega-firms with the gall to build skyscrapers shaped like writhing snakes but the architecture stars and the seriously avant-garde. Jean Nouvel is designing an opera house for Dubai and a branch of the Louvre next door in Abu Dhabi; the Oslo firm Snohetta has designed a “gateway”; Zaha Hadid is building a skyscraper and a massive office complex, (she's doing the opera house in Abu Dhabi); in January Norman Foster revealed plans to build an eco-city for half a million people in the Persian Gulf, and, last week, designs for the Abu Dhabi World Trade centre; and, busiest of all, there's Rem Koolhaas, with office complexes galore and a his new Waterfront City, unveiled this month.

This list of stellar architects marks a shift, according to the director of planning for Dubai, Rashad Bukash. “We want to change what people think of us. Dubai would like to be taken seriously.”

The place has had some bad press lately. It wasn't just that the city resembled a tart's boudoir. It wasn't just the logic, or lack of it, of building a megalopolis where daily temperatures of 50C (122F) require air-con on a Herculean scale and the largest per-capita carbon footprint in the world. Last year there were also reports of poor working conditions in Dubai's labour camps, home to the hundreds of thousands of workers, largely from South Asia, who build these icons. Chief among the critics was the left-wing architect Mike Davis whose book Evil Paradises: Dreamworlds of Neoliberalism, called Dubai “a nightmare of the past: Speer meets Disney on the shores of Araby”.

Yes, Dubai has been hurt by the criticism, says Khalid alMalik, CEO of Dubai's biggest developer, Tatweer. “But we don't ignore the screams. We are working hard to change. We have one great advantage: we are a city of Beduin nomads - we can change direction in an instant.”

The most obvious voltes-faces concern the environment and the labour camps. Since the United Arab Emirates signed the Kyoto treaty in 2005, Bukash says, Dubai has developed CO2 recovery technology, solar power, water recycling and desalination plants, while new codes mean “all new skyscrapers will be green”. The workers' accommodation has also improved, he insists. “These are five-star hotels, not labour camps. The Government has had a lot of attacks. Originally they were right, but we are trying.”

Such a rapid response to criticism is helped, of course, when the state is effectively ruled by one man - Sheikh Mohammed bin Rashid - son of Sheikh Rashid bin Saeed al-Maktoum, the leader who in the 1970s first began transforming Dubai from fishing village to world city. What “Sheikh Mo” says, goes, through the Hydra-headed conduit of Dubai Holdings, whose myriad subsidiaries control the city's various facets. “Dubai Inc” is basically old-fashioned oligarchic state planning, only with a gold (and now green) sheen.

But is this change more than just PR to appease the delicate consciences of one of Dubai's key markets, rich Westerners? “Yes, of course,” says al-Malik. “This is Dubai's survival instinct. Unlike other parts of the Gulf, we have never had much oil. The only thing we have is ideas. We trade on our wits. Behind the jokes the real Dubai is beginning to emerge.” It is helped, he says, by serious planning to make Dubai “a proper city”, with hinterland beyond the 20-mile strip of luxury hideaways, and a diverse economy.

The Dubai stock market opened in 2005, Jebel Ali port doubled in size and Dubai's new international airport swarms with visitors. New roads and bridges are being built, but also a metro and a light rail system to curb the city's reliance on the car. There are entire quarters dedicated to finance, the media, research, universities, IT - Dubai Internet City, with companies from Nokia to Microsoft - and healthcare.

Dubai even wants a “creative city”, up there with London and Barcelona. Last summer Sheikh Mo made one of the largest charitable donations in history, £5billion, to establish the Mohammed bin Rashid al-Maktoum Foundation, to foster, he said, a “knowledge-based society”. It began with the International Design Forum, where against a background of studded white designer leather, creative luminaries such as Rem Koolhaas, the New York designer Karim Rashid, Paola Antonelli from MoMA in New York and HansUlrich Obrist from the Serpentine Gallery in London, lectured the locals about how best to bring the artistic set to a city where art has been limited to the aforementioned gilded horses. There are plans for a college of innovation and design.

Until Damien Hirst moves to the Burj Arab, though, the aesthetic reinvention of Dubai is in the hands of its newest visitors, the star architects. Most repeat standard formulae, though Koolhaas's canny tactic is the “anti-icon”. He identifies what he calls “the Dubai icon paradox, that when everything looks so wildly different, it ends up looking all the same. They cancel each other out”. His solution is architecture that is “very generic, completely abstract”.

Porsche Towers, under construction for the car manufacturer, is a simple, if massive, cylindrical tower and a hollowed-out slab. His Waterfront City is a 1 billion sq ft artificial island of generic skyscrapers, offset by vast monolithic shapes: an 82storey spiralling cone, recalling the 9th-century minaret at the Great Mosque of Samarra, Iraq, and a 44storey sphere, already nicknamed the Death Star.

To Koolhaas, Dubai is a “postglobal” city in a permanent present, designed for international nomads. The developer al-Malik agrees. The UAE's long-term plan “is to become the hub between Europe and the Far East”, reaching a potential market of two billion people. For them, Dubai Inc is a place for a cut-price boob job, for sunbathing in January, followed by skiing, and now for avant-garde architecture.

It is the ultimate free-trade city, though one, ironically, built by an oligarchy, and to which we are all permanent visitors, never settlers. Only 20 per cent of the population is Emirati. While foreigners may buy their holiday homes, they hold only the leasehold, ownership remaining with that 20 per cent. Dubai is a true mirage and a perfect business plan. Joke? I reckon the joke's on us.

Editor's choice

• The 100 Best Films of the Decade
• 70 facts you didn't know about Marvel
• The 50 Biggest Movies Of 2010