On the seafront in Puerto Soller, there is an uneasy truce between the two faces of modern Mallorca. At the Esplendido Hotel, a waitress in white jeans serves cocktails on the terrace as lounge music spills out onto the early evening breeze. A few doors away, a souvenir shop sells nudie postcards and inflatable crocodiles.

Puerto Soller is a beach resort on the cusp of change. Five years ago, it looked distinctly tired, its hotels tatty monuments to the 1970s. During high season, the narrow beach road was gridlocked with cars and motorbikes honking horns and belching out fumes.

Today, the difference is astonishing.

A road tunnel has been blasted through the adjoining mountainside to divert traffic away from the seafront, and the local authority has extended the marina and restored historical buildings. With new restaurants and hotels opening, the port – and the town of Soller, two miles inland – is fast becoming the most attractive and sophisticated destination outside Palma.

Puerto Soller hugs a perfect horseshoe bay, the mouth of the harbour guarded by twin lighthouses. Behind it loom the craggy slopes of the Serra de Tramuntana and the island’s highest peak, the Puig Mayor.

Getting there has always been part of the allure. From Palma, an antique narrow-gauge railway trundles over mountain passes before descending into the handsome, compact town centre. From outside the station, a 90-year-old tram rattles its way to the harbour past green-shuttered houses, unfenced back gardens and acres of orange groves. So close are the tracks to the houses that you could almost reach out from your seat and pluck clothes from washing lines.

Until recently, passengers arriving at the port were disgorged into a noisy traffic jam. Now they find themselves on an attractive promenade where bars and restaurants spill onto wide pavements. A handful of superyachts are moored in the marina, but they are easily outnumbered by ranks of small fishing boats with gleaming white canvas awnings.

The Esplendido exemplifies the port’s transformation. Opened in 1954, its glory days were long past when it was bought by a Swedish couple, Mikael and Johanna Landstrom, owners of the fashionable Portixol Hotel in Palma.

Reopened last year, the Esplendido now ranks among the most stylish hotels in Mallorca, its cool, minimalist interiors offset by swirling wallpaper patterns and retro furniture. Popular with both young couples and families, it boasts a small spa, a smart bistro and two swimming pools – one for kids, one adults-only – that overlook the harbour.

Manager Jenny Bjork is delighted at the changes taking place in the port. “The whole place is moving upmarket, and getting cleaner and greener,” she says. “We’ve already had guests returning.”

A few yards back from the seafront stands the Aimia, a family-run hotel that has also emerged from an ambitious renovation. “We modernised the building, taking it from 64 rooms to 43,” explains its owner, Sebastia Alcover. “With the town changing like this, the time seemed right.” The result is delightful: light contemporary interiors, superbly finished, and a huge, wooden pool terrace.

Although Puerto Soller still has plenty of cheap, indifferent tourist restaurants, there are a couple of brilliant ones. One of the best is Es Faro (00 34-971 633752, www.solleronline.com/esfaro), wedged beside one of the lighthouses. Below, on the seafront, the recently opened Agapanto (971 633860, www.agapanto.com) offers modern cuisine served in a torchlit garden, with occasional DJs and live jazz.

Nearby, another beachfront building is being converted into a contemporary hotel: the Singular should be open next Easter. And there’s talk that when the Sa Talaia complex finally opens in 2009, it will be the most luxurious hotel in Spain.

About £15m has been spent on solving the traffic problems, with £2.5m lined up to go on cobbling the promenade and extending the beach. But despite all this development, some things in Puerto Soller remain reassuringly unchanged. Beside the tram stop, the Mar y Sol restaurant (971 631031) enjoys uninterrupted views across the bay and has an interior straight out of Brief Encounter: a wooden bar, whirling fans and a clock stuck at a minute past six. It’s where the tram drivers eat lunch.

Much of the architecture in Soller dates back to the turn of the 19th century, with elegant townhouses built in the modernista style. The magnificent church facade is among many buildings designed by Juan Rubio, a protégé of Antoni Gaudi. If you’re familiar with Barcelona, you’ll experience flashes of déjà vu as you wander the streets of Soller: all those wrought-iron gates, stained-glass windows and twisted balconies. Even the railway station is a minor masterpiece, with a permanent exhibition of paintings by Miro and ceramics by Picasso in the foyer.

On Gran Via, a derelict but formerly palatial house designed by Juan Rubio has been converted into an outstanding hotel, L’Avenida. It’s run by a British couple, Tania and Paul Slijper, who spent six months restoring it to its former grandeur. Adults only, with eight rooms and a small pool garden, it makes a perfect romantic getaway (and, no, they don’t sell cheesy postcards).

Mark Hodson travelled with Thomsonfly.com

Travel brief

Getting there: there are scheduled flights to Palma from 20 UK airports, and Dublin. Airlines include Thomsonfly (0870 190 0737, www.thomsonfly.com), BMI Baby (0871 224 0224, www.bmibaby.co.uk), EasyJet (www.easyjet.com), Flyglobespan (0871 271 0415, www.flyglobespan.com) and Ryanair (0871 246 0000, www.ryanair.com).

Getting around: Argus Car Hire (www.arguscarhire.com) has a week’s inclusive rental from £69. Or try Carrentals.co.uk.

Where to stay: the Esplendido Hotel (00 34-971 631850, www.esplendidohotel.com) has doubles from £89, B&B. The Aimia Hotel (971 631200, www.aimiahotel.com) has doubles from £95, B&B. L’Avenida Hotel (971 634075, www.avenida-hotel.com) charges £142, B&B, for a double in high season, falling to £128 from October 1. In the hills surrounding Soller and Puerto Soller, Mallorca Farmhouses (0845 800 8080, www.mfh.co.uk) has several impressive villas with pools, including Marblau, which sleeps six; from £1,047 per week in September.

Further information: www.Espl dido infomallorca.net .

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