Vang Vieng, deep in the jungle of Laos, is a backpacker paradise where there are no rules. Last year at least 27 travellers died there, and countless more were injured

It is Adam Axford's last day in Vang Vieng. We know this because scrawled across his naked torso in jumbo marker pen are the words "Last Day!" The 26-year-old Essex boy is returning to Ilford ("the real world") in the morning, and the message is designed to elicit "snogs and sympathy" from the spray-painted, bikini-clad women partying at a riverside bar in this tiny town in rural Laos.

A tattoo on Axford's hip reads: "Viva Vang Vieng". The same words adorn the baseball cap he wears over his sweat-matted hair. "You must really love this place," I yell above the techno music shaking the rickety bamboo bar beside the Nam Song river.

"Yeah," shouts Axford. "I really, really love this place. Every morning I hug these mountains. I thank them because I've never been happier in my life."

Vang Vieng is the planet's most improbable party town. Located deep in central Laos, one of southeast Asia's poorest countries, the once-tranquil farming village has become a seething epicentre of backpackers behaving badly. "God no, you don't come to Vang Vieng for the culture, like temples and stuff," laughs a 19-year-old Australian called Louise, who is dancing to a Flo Rida anthem with a beer bottle in each hand at one of the many riverside bars. "You come here to get wasted." Half an hour later I spot Louise vomiting over her sparkly flip-flops before passing out. Got it.

Vang Vieng is a four-hour bus journey on mostly dirt roads from the capital Vientiane. After Communist-run Laos opened up in the early 1990s, the town first earned a place on the so-called Banana Pancake Trail – the path beaten by budget travellers across southeast Asia – thanks to its natural beauty. Along with its towering limestone peaks, the area is dense with caves, lagoons and forests.

Then came "tubing".

About 10 years ago, the pastime of riding tractor-tyre inner tubes down the meandering Nam Song river started to gain word-of-mouth popularity. In the past three or four years, the scene has exploded. Ramshackle wooden bars opened along the river banks, enticing passing tubing customers with throbbing party music and free shots of the local Lao-Lao whisky. Rope swings, giant water slides and zip lines sprang up beside the bars, inviting sozzled gap-year kids to take their chances with the rocky riverbed in unsupervised acts of derring-do.

Tubing and drinking on the Nam Song river

The rapid development quickly earned this once pristine stretch of the Nam Song a new label on the town map: "Water Fun Park". And after some enterprising locals printed the T-shirt – "Tubing in the Vang Vieng, Laos" – there was no going back. In Vang Vieng province (population 51,000), backpackers now outnumber locals by about three to one. In the main town, where nearly all the tourism is concentrated, the figure on any given day is an astonishing 15 to one.

A low-rise mix of French colonial bungalows, wooden houses and small concrete buildings, the entire town has become a backpackers' bazaar catering to the estimated 170,000 who arrive every year. The two main streets are a jumble of restaurants, bars, internet cafés, pancake stalls, travel agents and £3-a-night guesthouses. Most tourists are European and Australian, but other nationalities have found their way here, too: recently de-mobbed Israeli boy-soldiers, Japanese college students, South American rich kids. A bunch of nattily dressed Indians in wraparound shades turn out to be IT workers from Bangalore, who've come to "blow off steam" after finishing a big telecom project.

Blowing off steam is one of the more grandma-friendly ways to describe Vang Vieng's backpacker appeal. The riverside FU BAR, where the Indian IT workers are hooting with laughter as they jump into the water fully clothed, is more direct: a giant sign explains that the name means Fucked Up Beyond All Recognition. It's also more accurate. At around £1 a litre, Lao-Lao is so cheap it's served in beach buckets. Bottled water, as everyone here loves to mention, is more expensive. Lao-Lao has an alcohol content of around 45%.

Drugs are plentiful, too. Nearly every restaurant offers "happy" pizzas and "magic" shakes or teas laden with marijuana, opium and mushrooms. Most places advertise such fare on sandwich boards right outside. And many travellers are high not only on booze or drugs – a euphoria pervades the riverside bars and clubs that has more to do with the complete absence of rules or responsibilities, a kids-in-a-candy-store incredulity that you can go wild here and nobody will stop you. It's a similar scene to Thailand's infamous full-moon parties, except for one crucial difference. The party in Vang Vieng doesn't occur only one night every six weeks. The party here never ends.

"Vang Vieng sells JOY, it sells an illusion of total freedom," says Sengkeo "Bob" Frichitthavong, 38, a local guesthouse owner who was born in Vang Vieng, but spent 12 years in Canada. "Lao people are very peaceful and tolerant; we don't complain. Backpackers think we don't care how they behave because we're making money from tourism. But there are many dark sides to what is happening."

Frequent tragedies occur as a result of mixing alcohol with tubing, and other river stunts. Vang Vieng's tiny hospital recorded 27 tourist deaths in 2011 due to drowning or diving head first into rocks, including that of a 23-year-old Dorset man, Benjamin Light. A senior doctor at the hospital, Dr Chit, says the overall figure is higher because "many fatalities are taken straight to Vientiane".

In early 2012, two Australian backpackers died within a month. First, Lee Hudswell, 26, somersaulted into the river from an area marked with a "Do Not Jump" sign and fatally cracked his skull on a large rock. (The sign, hastily rewritten by hand, now reads, "Do Not Jump or You Will Die".) Daniel Eimutis, 19, drowned while tubing a couple of weeks later. Both had been drinking, said their friends.

Dr Chit says five to 10 backpackers a day arrive at the hospital with injuries such as broken bones or infected gashes, or sickness caused by alcohol or drugs. One tourist scraped all the skin off her face on the rocks. "There are no safety measures or supervision, no helmets," says Dr Chit. "We're not equipped to treat anything serious." People with broken limbs must go to Vientiane, an agonising journey over the pot-holed roads. Dr Chit, a stocky man in his 50s, never stops smiling, but says hospital staff are "frustrated".

Most fatalities occur on the same bar-heavy stretch of river that's less than 1km long. "It's pure Darwinism," says backpacking travel expert Stuart McDonald, a regular visitor to Laos and the Australian founder of travelfish.org. "If kids keep getting tanked and jumping off trees or ropes, they're going to keep dying." The Laotian authorities, he adds, do nothing because they have vested interests in the river bars. Many drug-related deaths in Vang Vieng go unreported. "We often get first-hand accounts from travellers about people dying from overdoses or bad batches."

For Laotian villagers living near the river, the deaths have brought bad karma. The Nam Song was once a central part of family life, a serene spot for bathing, playing, fishing and washing clothes. Today, very few locals will go near it. As in much of rural Asia, animist-Buddhist beliefs in powerful spirits that inhabit the natural environment are still woven into everyday life.

"We don't want to swim in the river any more," explains La Phengxayya, 25, a primary school teacher in Phoudindaeng, the village closest to the tubing area. "We believe there are evil spirits in the water because so many young foreigners have died." She says the locals have a refrain for when backpackers stagger back into town after a day of tubing and debauchery, covered in body paint and grubby bandages and wearing skimpy, ragged clothes: "The zombies are coming."

Laotians are hardly teetotallers – they home-brew Lao-Lao and down it in vast quantities on special occasions. Smoking opium is part of traditional culture, particularly among hill tribes such as the Hmong. But the culture is modest and conservative when it comes to human relations. Phengxayya politely admits that she's offended by the sight of Westerners walking through town wearing nothing but board shorts or bikinis. "In Laos we cover up our arms and legs. I don't want my four-year-old daughter to copy the foreigners."

There are signs asking tourists to respect dress codes, but many ignore them. At peak party-time on the river, there are frequent episodes of boob-flashing, mooning and boys waggling their privates around for the hell of it. McDonald says couples having sex in inner tubes as they float along the Nam Song is known to happen, too.

Laos was on the hippy trail in the 1960s. The capital, Vientiane, boasted the world's largest legal opium den, attracting overland travellers via Afghanistan and India. That petered out with another foreign invasion, the US carpet-bombing campaign during the Vietnam War that, per capita, made Laos the most bombed country in history. Thanongsi Sorangkoun, a Vang Vieng native in his 60s, says it took a long time to restore the natural environment and rice-producing economy after the war ended. "When I was young there were tigers in the mountains and thousands of bats in the caves. It was a wildlife paradise." Much of that was lost for ever, but Sorangkoun did his bit by starting an organic farm by the Nam Song. As tourists started to trickle back into Laos in the 1990s he built a guesthouse for foreigners who wanted to volunteer on his 30 acres of mulberry trees and vegetable gardens.

Then, in 1998, he made a fateful purchase. "I bought some inner tubes for my volunteers. I thought it would be a cheap and ecological way to see the river." He grimaces. "I accidentally started this whole thing." Tubing became so popular that locals started up a business co-operative to rent out tubes, which now comprises over 1,500 households. Many shareholders are now caught in a classic tourism catch-22. They've become too dependent on the income tubing generates to stop the business, but they're paying a much higher price than they expected for its success.

That mass tourism has an impact on local communities in both good and bad ways is well documented. There are countless examples in Asia alone, from Kuta Beach in Bali to Angkor Wat in Cambodia to just about everywhere in Thailand. But few places are such models of total self-implosion as Vang Vieng. Go two or three miles in any direction outside and the gentle, bucolic Lao lifestyle remains unchanged. But the town, says Frichitthavong, has been utterly destroyed.

"Our traditional way of life has been eaten alive," he says. "The noise pollution, the nudity, the rude behaviour, and now we have problems with our own youth stealing from tourists and getting addicted to alcohol and drugs." Frichitthavong's 12 years abroad have helped him develop a nuanced view of Vang Vieng's ruination. "It's a complicated dynamic. Rural life is hard. Everyone wants the economic benefits of tourism – of course we do. But we shouldn't sell our souls to get it."

Young revellers in Vang Vieng

Young men like Khamkeo Doungsamone, 19, wrestle with this conundrum daily. Doungsamone grew up in a mountain village with no road or electricity. His parents were rice farmers. He had to walk for two days to attend a school in the town. "I would sleep on a relative's floor while I studied and then walk home again." His parents encouraged him to learn English "for his future", so he taught himself from books. "They didn't want me to work in the fields like them," says Doungsamone, a short but wide-set youth who looks 12 when he smiles.

When he finished school he found a job in a big tourist restaurant with a huge TV screen and seats facing forward cinema-style. (After bingeing, backpackers zone out in front of re-runs of Friends and South Park.) Doungsamone worked from 6am to 1am every day for 500,000 kip (£41) a month. He hated it. "I had to deal with drunk people all the time, and my boss blamed me when they broke glasses or threw up." He missed his parents and cried when he called them. "They wouldn't let me come home. They said I had to keep trying because there was no other choice."

Later, at their stilted wooden home, Doungsamone's parents tell me that the fate they most feared for him, even more than rice farming, was that he'd go to work by the river. The bars employ young Laotians to sit on the banks and throw out fishing lines to drag in passing tubers, and also to dredge the riverbed for debris. Many get sucked into the infectious party atmosphere.

"Lots of adolescent boys are dropping out of school to hang out at the river," says Doungsamone's older brother Khamming, 26, a youth worker whose job partly involves counselling them. "Our cousin almost died because he worked for a river bar and barely ate for three years. He only drank and did drugs. He ended up in hospital with severe malnutrition."

As for Doungsamone's career in the tourist restaurant, it ended abruptly after a French backpacker accused him of stealing her camera, to avoid paying her bill. His boss took his side, but he was so mortified he left. He now works at Sorangkoun's organic farm. "I will never forget that French person for as long as I live," he says.

It's midday on the banks of the Nam Song. Adam Axford, who's a part-time magician back in Ilford, is spending his last day organising drinking games. "Lime in the eye!" he shouts, inviting the crowd to join a contest involving downing a shot, snorting salt and squeezing lime juice into their eyeballs. "It doesn't get any more stupid than this!" he enthuses.

Axford, however, is drinking shandy. He's spent the last five months working as a "volunteer" at the Q Bar and knows to pace himself. Around 60 to 70 westerners work in the bars informally. Painted in party slogans, they hand out free shots and keep the atmosphere cranked up. It's a clever move on the part of the mostly Laotian bar owners, and a big factor in Vang Vieng's singular hedonistic excess. "Backpackers trust other westerners. They don't worry that the drinks are spiked or that they're getting ripped off," explains Canadian volunteer Scotty Balon, 31, who's sporting the invitation "Kiss Me. I'm Shit-Faced" across his chest.

The next day, I chat with backpackers about the views I've heard from local people about their party paradise. They scrabble for reasons that make it all OK: if the locals didn't want them here, they'd make them leave; there are more drugs in Ibiza; more deaths at ski resorts; more loutish behaviour in Manchester. A Swede argues they've helped the local economy by increasing the production of beach buckets. The conversation skips a beat as everyone wonders whether she's serious. She is. It seems almost cruel to tell her the buckets are probably made in China.

But it all misses the point. "It's not about them," says Stuart McDonald. "Nobody blames the backpackers directly. Of course they want to have a good time, get laid, get wasted, get high, it's all normal. But it's not their country. It's just gone to such an extreme, and there's no consideration whatsoever for local sensibilities."

Vang Vieng natives such as Frichitthavong and Sorangkoun say responsibility lies with the Lao authorities to enforce regulations with regard to problems like noise pollution and wild behaviour, and to improve water safety – all of which wouldn't take much effort. But they also believe there's too much corruption and cronyism surrounding the river-bar scene for that to happen. Many businesses are owned by the town's most powerful people, who pay off the tourist police and other officials. Certainly, the will to implement change doesn't seem to exist anywhere that it counts. When contacted for this article about their future plans for the area, both the Vang Vieng local government and the tourist authorities gave the same meaningless response: "We are considering the situation."

As Laos develops further, McDonald says the country might learn from its mistakes. "Tourism promoters in southern Laos recently told me they were using Vang Vieng as an example of exactly how they didn't want to do things, so that's one positive." He's not sure whether the remote town can ever come back from the brink, but it's clearly hard to give up hope. Earlier, McDonald's wife and business partner Sam had told me that, of the countless tourist hotspots in Asia they've revisited to update their backpacking website, Vang Vieng is the only place that made her husband cry when he saw how it had changed. "I don't recall actually bursting into tears," coughs McDonald. "But yes, it's very likely that it provoked that reaction. It used to be such a special place. It still is, underneath it all."