Despite his house arrest, and 20-year ban on making films, the Iranian director has released a movie – the unclassifiable This Is Not a Film, smuggled out of the country in a cake

If one accepts Iran's ruling that Jafar Panahi is no longer a film-maker, then it follows that his latest release is an orphan, unnamed and unclassifiable; a 75-minute yawp in the darkness.

"This Is Not a Film," the opening title assures us, after which we are free to sit back and watch as the Iranian dissident pads distractedly about his Tehran apartment, testing the limits of his cage and implicitly highlighting the absurdity of his situation. The result may well be the most intriguing, quietly compelling non-movie we'll see all year.

In December 2010, Panahi was convicted by Iran's Islamic republic of "making propaganda against the system" and placed under house arrest. He faces a 20-year ban on writing scripts, directing films, giving interviews or leaving the country.

As an added bonus, he is currently staring down the barrel of a six-year jail term – he is in a judicial phase known as "execution of the verdict", which means that his prison sentence can start at any moment.

Made in tandem with the documentary director Mojtaba Mirtahmasb (who was later arrested for his trouble), This Is Not a Film, which goes on general release on 30 March, catches the exile at play – obeying the letter of the law, if not quite the spirit.

If Panahi cannot make a film, he will simply tell us about the film he would make if he could. So he sits in his book-lined apartment, reciting dialogue from his script and mapping fictional landscapes on a Persian rug. "You can't call 'cut!'" Mirtahmasb scolds him at one point. "It is an offence."

The director once remarked that he had spent his entire career making movies "constructed around the notion of restriction, limitation, confinement and boundaries".

In the case of This Is Not a Film, however, he finds himself tied in knots that would thwart Houdini.

Panahi, alongside Abbas Kiarostami and Mohsen Makhmalbaf, was a leading light of the Iranian new wave, the creator of haunting social-realist fables that were suppressed in his homeland but played well with art house audiences in the west.

He studied film at the Iran broadcasting college in Tehran, where he became obsessed with Alfred Hitchcock and dreamed of imitating the master's icy, high-concept style. But his first short film was a disaster. "So cold and artificial that it had no soul," he admitted. "I knew I had to go another way."

Panahi's alternative route involved him first working as an assistant on Kiarostami's Through the Olive Trees and then making an acclaimed feature debut with 1995's The White Balloon, a deceptively simple folk tale about a girl's trip to buy a goldfish. If there was any political commentary in those early works (The White Balloon, 1997's charming drama The Mirror), the director kept it low in the mix; shrewdly folded amid the hurly-burly of the city streets.

"There is a sense in many films of the Iranian new wave that the real meaning lies in what's going on in the background," explains Geoff Andrew, the head of film programming at BFI Southbank, which is planning a retrospective of Panahi's work.

"That gives a lovely elusiveness to the narrative and pushes the audience to think. But it's also born out of necessity, in that it's what Iranian film-makers have to do. They're not allowed to put a message up front. So they have to scatter seeds to either side and hope that we're clever enough to pick them up."

Yet Panahi may have crossed the line with his subsequent work. The Circle (2000) turned out to be an impassioned criticism of the treatment of women in Iran. Crimson Gold (2003) spotlighted a crisis of masculinity in the nation's underclass, and Offside (2006) was prompted by the experience of the director's daughter, who was refused entrance to a football stadium because of her gender. All three films won awards on the international festival circuit. All three were promptly banned in Iran.

"I don't think Panahi's a party political director, but he certainly points out that life is not a bed of roses, particularly for women," says Andrew. "Undeniably he makes films that the regime don't like. But given that they ban so many films, that seems almost inevitable."

In 2009, for good measure, Panahi became a vocal supporter of the green movement, protesting against the result of the disputed election that returned Mahmoud Ahmadinejad to power.

In March 2010, the director was arrested at his home and taken by plainclothes officers to Evin prison, a notorious holding-pen for political dissidents. Iran's culture minister later explained that this was because "he was making a film against the regime and it was about the events that followed the election", although Panahi's wife says that this is untrue.

The arrest sparked a petition signed by many high-profile actors and directors (Steven Spielberg, Robert De Niro, the Coen brothers). Later, at the Cannes film festival, Juliette Binoche broke down in tears at the podium upon hearing reports that Panahi had begun a hunger strike. He was eventually released on bail at the end of May that year.

"I think it's the duty of all film workers to oppose censorship wherever it takes place," says the British film-maker Ken Loach, who was one of the first to call for Panahi's release. "I slightly resist the idea that we can feel smug about living in the west, because there is censorship here too. But at least artists are not being put in prison as a result of their creative decisions. Men like Panahi are suffering in a way that we are not."

In the meantime, what's the answer? Hobbled by restrictions, their every move scrutinised, Panahi's new-wave compatriots have largely decided to abandon Iran. Makhmalbaf now lives in Paris and has no plans to return, while Kiarostami shot his last film in Tuscany and remains sceptical about his chances of ever making another picture on home soil. Yet Panahi has always identified himself as an Iranian film-maker, based in Iran. It is a stance that may turn out to have cost him dear.

"I don't know what I'd do in his situation," Loach admits. "Of course the best solution is for a film-maker to make films in his own country, where he understands the nuances of the language and can see details below the surface.

"If you choose to make films outside of your natural habitat, you're really just approaching the material like a tourist. So I have a great respect for the man's decision to stay put, despite the obvious danger that brings."

On camera, in This Is Not a Film, Jafar Panahi does not look like your obvious firebrand. The man's manner is professorial and low key; his mood a ruminative brew of gloom and amusement.

He finds himself cast as the unwilling hero of his own reality show, surrounded by oddball supporting characters (his pet iguana, a moonlighting art student, a neighbour's yapping dog) and railing against the sheer dumb injustice of his house arrest.

In keeping with Panahi's bizarre circumstance, the film was finally smuggled out of Iran in the form of a USB stick concealed within a birthday cake.

"I love the fact that he sent it to us in a cake," says the British-Iranian comic Omid Djalili. "It's a gift, it's a laugh; it says a lot about the spirit of the man." Djalili points out that, for all their barbed social commentary, Panahi's pictures are also very funny; gently catching the sheer absurdity of life in modern-day Iran. "I see this one as a kind of comic enterprise. Sometimes the limitations of the enterprise overwhelm him and those scenes are very moving. But he's always fighting against that sense of futility. He never loses his sense of the ridiculous."

Panahi's attitude reminds Djalili of the tales of his own ancestors back in Iran. "They were Baha'i Iranians, which was an outlawed faith. They were poets and intellectuals and they were captured and humiliated on the streets, because they were Baha'i. The authorities put dunces' hats on their heads and forced them to walk barefoot in the snow. And their response was to look at one another and just burst out laughing. The situation was so stupid that you could only look on it as a big, silly joke.

"Panahi has the same rebellious spirit. He's turning the situation to his advantage. He's irrepressible, so he finds a way to overcome what obstacles they give him. Even if they put him in a cell, he'll probably make a film about getting up to have a piss in a bucket."

For the time being, Panahi remains in limbo. The prognosis is bleak. As matters stand, it seems possible that This Is Not a Film will be Panahi's swansong. It is his film in disguise, the one that got away; a rueful critique of an oppressive regime and a heartfelt salute to the creative impulse that will not be quashed. "It is a film about imprisonment," says Andrew. "But in the very fact of it being made, it is a film about liberation."

Pocket profile



Born Meyaneh, Azerbaijan; 11 July 1960

Career to date Won a literary prize for his debut novel, aged 10. After graduating from Tehran's broadcasting college, was mentored by director Abbas Kiarostami and won 1995 Cannes Camera d'Or award for his first feature, The White Balloon. Feted at film festivals ever since, it is Panahi's fate to be a darling abroad and a pariah at home. Iranians are only able to view his work on pirated bootlegs.

High point His controversial drama The Circle took top prize at the 2000 Venice film festival and was named film of the year at San Sebastián.

Low point The spring of 2010, spent on hunger strike in Tehran's Evin prison.

What he says "I am an Iranian. I am staying in my country and I like to work in my country. I love my country. I have paid a price for this love too, and am willing to pay again if necessary."

What others say "Jafar Panahi was inclined to make his films under clandestine, illegal circumstances, but that's not his responsibility alone. The responsibility is that of the authorities who prevent him from carrying out his profession." Abbas Kiarostami