The streets of Porcupine were tranquil yesterday; a handful of locals strolled through its shopping malls, the sun was shining, and a light breeze blew in from over the hills. There were few hints of the fact that, only days before, the neighbourhood had been the scene of violent clashes between rightwing extremists and anti-Nazi protesters - running battles involving gunfire and bombs that might easily have cost lives were it not for the fact that Porcupine does not, in most commonly accepted senses of the term, exist.

A lesson you quickly learn upon entering the online virtual world of Second Life, however, is that non-existence is less of an impediment than might be supposed.

It hasn't stopped the development of a fully-featured alternative universe in which Second Life's 2.4 million registered users build houses, set up businesses, form clubs and societies, hold parties and have sex. And it did not prevent protest from spilling over into aggression when the Front National, the far-right French group led by Jean-Marie Le Pen, became the first European political party to open a headquarters within Second Life.

"The first night I arrived at the protest ... it was ringed on all sides by protesters with signs to wave and statements to distribute," wrote James Au, whose website, New World Notes, reports on events in Second Life. "By the second night I came ... the conflict had become more literal, for many residents had armed themselves. Multi-coloured explosions and constant gunfire shredded the air of Porcupine." Some activists threw exploding pigs.

"This nationalist idea that Front National is advocating is something that has spread all over Europe like a virus," a protester, using the name Ichi Jaehun, told Mr Au. "It's [as if] the history of the 20th century has already been forgotten. It is time to say enough!"

A group calling itself Second Life Left Unity issued press releases explaining that it had purchased land next to the Front National office, and would be "manning a protest there until FN go or are ejected. Wherever fascists are, we will ensure they get no peace to corrupt and lie to decent people".

A few days later, the Front National building had vanished altogether, leaving only a few protest placards showing Mr Le Pen - who made it through to the final round of the last real-world French presidential election in 2002 - wearing a Hitler moustache.

It was probably inevitable that political confrontation would arrive in Second Life in the end. It is already home to one of the most potentially revolutionary developments on the internet in recent years - a vibrant economy in which residents use a virtual currency, Linden dollars, to buy and sell goods and services, including clothes for their online characters, works of art, buildings, and financial advice.

Because users retain legal ownership of the things they create, and because Linden dollars can be turned into US dollars via an exchange operated by Linden Lab, the company behind Second Life, the virtual-world businesses have real-world value. Numerous real firms have opened outlets in Second Life, and a woman living in Germany has reportedly become its first dollar millionaire - from the property development business she runs inside Second Life.

And so it was not such a stretch to imagine that political parties might soon want to get in on the action. The US Congress held an opening ceremony in Second Life earlier this month to coincide with the one in Washington - an event marked by a discussion forum held "in-world," to use Second Life's jargon, by a character controlled by the senior Democratic congressman George Miller. (The news was reported by Reuters, which operates a bureau inside Second Life.)

The UK Independence Party has also promised to open a headquarters in-world. "The other parties are devoid of fresh thinking, and I fully expect them now to copy us and follow our lead," said Ukip supporter Chad Noble, who is in charge of the project.

The Guardian's "avatar", or on-screen character, tracked down the Front National to Axel, another region in Second Life, where they had rebuilt their headquarters and were engaging a handful of opponents in relatively restrained debate. "Le Pen is the son of Hitler," one protester ventured. "I know lots of people descended from immigrants who vote for the Front National because they're not ashamed to be French," a Le Pen supporter countered, "and I think you'll be surprised at how many people of an immigrant background vote for Le Pen at the next election."

Debate has raged in Second Life as to whether the Front National's presence violates the terms of service that all users must accept on signing up. (Linden Lab was not commenting yesterday.) Race hate is against the regulations. But while Front National members including Mr Le Pen have been convicted of inciting racial hatred in France, it wasn't clear that any avatars had been guilty of it inside Second Life. Should a conviction in one universe carry over into another? Does the question even make sense?

Where do the boundaries of reality lie? And do you have a throbbing headache yet?

Cyber spaces

The growing buzz around Second Life has convinced businesses, politicians and charities to join in:

· Computer giant IBM believes virtual worlds will have a huge impact on business and society. It runs workshops, parties and even business meetings in Second Life

· The BBC ran a series of concerts in the game last spring, with Muse, Razorlight, left, and Gnarls Barkley

· Reuters runs its own news bureau, with virtual reporter Adam Reuters .

· The Center for Public Diplomacy at the University of Southern California has bought its own island in Second Life to see how productive political work inside cyberspace can be

· Save the Children runs a "Yak Shak" where charitable Lifers can spend 1,000 Linden dollars (£1.80) to buy a digitised yak

· Californian Democrat George Miller held an in-game press conference on a virtual Capitol Hill to mark the start of the new congressional period this month

· TV production firm Endemol is reported to be creating a virtual Big Brother show - though it is not clear whether Jade Goody will be making a virtual appearance

Bobbie Johnson