A century ago, bountiful grain and beef exports made Argentina the eighth wealthiest nation on Earth. Its per capita income exceeded by 50% that of various European countries, including Italy, and more than tripled that of Japan. An unstoppable wave of emigrants crossed the Atlantic to its main port and capital, Buenos Aires, where work was abundant and living conditions good. They arrived in their millions from Italy and Spain and in their hundreds of thousands from France, Germany, Austria and Poland.

The hope of becoming "as rich as an Argentinian" acted as such a powerful magnet that by 1914 half of the 1.6 million inhabitants of Buenos Aires had been born outside Argentina, most of them in Europe. Buenos Aires thus embarked on an architectural overhaul that turned it from a faraway former colonial outpost of the Spanish empire into a bustling, modern metropolis – a legacy that is now the subject of an increasingly bitter struggle.

"Buenos Aires was so rich that it was comparable to today's Abu Dhabi," says Teresa Anchorena, a former city legislator and a current member of Argentina's national heritage commission. "It could afford to hire the best architects in the world to design buildings fit for a leading nation."

Those European architects soon made Buenos Aires internationally known as the Paris of South America, a multicultural city with wide elegant avenues that rivalled the planet's major capitals in cultural refinement and modern conveniences. New inventions, such as telephone lines, electric street lighting and underground railway lines, came to Buenos Aires simultaneously with major cities in the US and Europe, much of them built by British companies.

But Argentina sadly failed to live up to its early promise. Whether through inadequate economic decisions or because the wind direction of international markets turned against its export commodities, by the 1950s the country had crashed into the railings. It has since sunk to 55th position globally in per capita income, racked by decades of chronic inflation and a series of economic crises.

Turmoil hit again last month when Argentina was declared in default by international credit rating agencies after a US court ruled the nation must pay $1.3bn to foreign debt holders who refused to take a "haircut" on bonds they hold from the previous default in 2001. "When that old glory faded, the city was left with remarkable landmarks such as the Colón opera house [the third best in the world, according to National Geographic] that no longer correspond to the city's ranking," says Anchorena. "But at the same time that contrast is part of what makes Buenos Aires such a unique and complex, super-attractive, pulsating city today, so we should try our hardest to preserve what remains of that formidable past."

Buenos Aires has not traditionally been concerned about preservation. Only a handful of buildings remain from the colonial years after the city's founding in 1536 in what is now the old San Telmo tourist district. The Parisian architecture of the early 20th century has also been shrinking because of the property boom that accompanied a renewed spurt of economic growth in the last decade until 2013.

"The ideology has always been: this is America, everything needs to be new," says Sergio Kiernan, a journalist who writes a weekly column in the daily Página/12 that chronicles the razing of old buildings. "That attitude is still prevalent in sectors of government today." But recently a combination of specialists such as Anchorena and grassroots groups alarmed at the rapid pace of destruction have become a major headache for developers, as well as for the city's authorities.

The unlikely hero of the heritage cause is mild-mannered music teacher Santiago Pusso. A devout Catholic, Pusso, when not teaching at the city conservatory, can be found giving music classes to deprived children at the Caacupé church in the Villa 21 slum.

In 2007 Pusso set up the tiny group Basta de Demoler (Stop the Demolition) with like-minded neighbours. They discovered the quickest way to stop demolitions was through the legal system. "We decided to go to the courts," says Pusso. "This David and Goliath fight would be impossible otherwise."

Among the major projects stopped by Pusso was an 18-storey hotel approved by city planners next to the church of Santa Catalina, built in 1745, whose gardens, open to the public, are an oasis of peace in the downtown area. Probably the best remaining example of Buenos Aires's colonial-era architecture, Santa Catalina was briefly occupied by British forces during the second failed "British invasion" of Buenos Aires, led by John Whitelocke in 1807.

"Pusso is using a highly unusual tactic, by which an uninvolved third party steps in and blocks a major construction project through the courts," says Kiernan. "Since Basta de Demoler first stopped a demolition in 2007 that way, the method has been applied by other NGOs and private citizens in a growing number of cases."

Pusso's already brittle relationship with city hall snapped last week when he was handed a lawsuit claiming 24m pesos (£1.7m) in damages for blocking the construction of a new subway station underneath Plaza Alvear, a landscaped 19th-century park in the upscale neighbourhood of Recoleta. The park is a main tourist attraction because of its weekend "hippie fair" and its proximity to the Recoleta church built in 1732.

Pusso had gone to the courts to protect the park. The judge ordered the city to stop the digging for the station (ancient trees were removed with the idea of replanting them once it was finished) while the court decided if the station was being built in accordance with the city's subway legislation, which stated that it should be built on Plaza Francia, across the avenue from Plaza Alvear. The city argued that Plaza Alvear was also colloquially referred to as "Plaza Francia" while critics said the city was twisting the wording of the law to favour a shopping mall on the hill behind Plaza Alvear.

Finally the city stopped digging and announced it was moving the subway station to the nearby Buenos Aires University law school, itself a monumental city landmark built in the 1940s in a Greco-Roman pastiche style reminiscent of European fascist architecture of the period.

That appeared to be the end of the story, until the city announced it was suing Pusso. "The NGO made an abusive use of its right to seek protection through the courts," says Buenos Aires's attorney general, Julio Conte Grand, who filed the claim. "Its objective was political, to cause economic and political damage to the city's government. We are suing to recover the financial loss incurred because of the delay in completing the subway station."

The allegation of Pusso's "political" motives is included in the legal claim, sending chills down the spine of heritage campaigners. "This is revenge. You can't accuse Basta de Demoler of stopping the subway station: it was stopped by the judge," says Kiernan. "It is barbaric," agrees Anchorena. "The authorities are completely insensitive to heritage issues. They are nowhere even close to other Latin American nations such as Colombia or Mexico when it comes to preservation."

The city government dismisses such criticism. "We have catalogued more historical buildings for preservation than any previous administration," says Horacio Rodríguez Larreta, cabinet chief of Buenos Aires (equivalent to deputy mayor). He points to major undertakings such as the painstaking renovation of the Colón opera house (first opened in 1908) and the new Usina del Arte, an eyecatching renovation that turned an abandoned electrical works built in 1912 into a stunning arts complex in the district of La Boca.

The mayor of Buenos Aires, Mauricio Macri of the centre-right PRO party, who is narrowly leading opinion polls in the runup to next year's presidential elections, can claim other positive advances on the heritage front. "We have turned traffic-jammed downtown streets in the historical district into pedestrian walks, breathing new life into that area," says Rodríguez Larreta. The city has also been working hand in hand with owners of landmark buildings such as the once British-owned 1912 Gath & Chávez department store in Florida Street to restore their facades.

Whatever the courts decide in the city's lawsuit against Pusso and his group, one thing is clear. The issue of the city's architectural heritage, long neglected by both the public and authorities, has arrived in Buenos Aires to stay.