As soon as you land at Rovaniemi airport in Lapland you see a reindeer. Not a real one, admittedly, but somebody in a Rudolf suit cheerily greeting passengers who have just arrived. A couple of miles from “Santa’s official airport” lies Santa Claus Village, an amusement park complete with elves, real reindeers, huskies, shops and restaurants that draws more than 600,000 visitors a year to this isolated spot at the edge of the Arctic Circle.

There are reindeer everywhere in Rovaniemi: humans dressed as them at the airport, real ones pulling sleighs at Santa Claus Village and statues of them throughout the city centre.

Few tourists notice the biggest reindeer in Rovaniemi: the one embedded in the street plan

But the biggest is one few tourists notice: the reindeer head embedded in the Finnish city’s street plan. This was the work of Finland’s greatest architect, Alvar Aalto, when he rebuilt the Lapland’s capital after it was burned to the ground by the retreating German army during the second world war.

In the 1930s, Rovaniemi was a quiet trading town of around 6,000 people until Russia invaded in 1939. The Finns fought off their aggressors in the brutal winter war of 1939-40, then allied with Germany for protection from further Russian incursions.

The Germans created a base in Rovaniemi, doubling the town’s population. The Luftwaffe built an airfield – now “Santa’s official airport” – and a barracks that would become the site of Santa Claus Village.

When the tide of war turned against the Axis powers, Russia told the Finns to expel the Germans; as the German army departed in October 1944, they burned Rovaniemi to the ground. The residents had already been evacuated, many to Sweden, an arduous process in which 279 died. Another 200 died on their return to Rovaniemi, killed by mines the Germans laid to protect their withdrawal.

The ruins of Rovaniemi on 16 October 1944. Photograph: FLHC 72/Alamy

The Germans destroyed 90% of the town – residents recalled returning to a smoking ruin with just chimney stacks left standing. Pekka Ojala, who runs a B&B and sauna near the city centre, still finds burnt wood and metal in his garden. Outside Rovaniemi is a cemetery for the German war dead that contains the bodies of around 2,500 soldiers.

This was the scene of desolation that greeted Aalto when he was commissioned by the Association of Finnish Architects to reconstruct the town in 1945. “He saw the burned town as an opportunity,” says Jussi Rautsi, a former planner and researcher at the Alvar Aalto Foundation. Partly inspired by the US president Franklin Roosevelt’s Tennessee Valley Authority, Aalto created a plan for all of Lapland – a land mass as large as Holland and Belgium combined.

Aalto started by rebuilding the city with single housing units designed specifically for the climate in Rovaniemi and Lapland so they had as little north-facing facade as possible, and maximum external exposure to the sun in the south-west. In the 1950s his plan expanded beyond the city to include the entire region.

Aalto factored in hydroelectric plants being built on the great rivers of Lapland, and commissioned impact assessments to see what the effect would be on the environment, indigenous Sami, reindeer herds, water basins and microclimate. “Nobody in the world had done such a plan,” says Rautsi. “It had all spatial levels: regional, entire town, parts of towns, neighbourhoods, even peripheral estates. This was the only plan of this magnitude in the world.”

Aalto conceived Rovaniemi’s “reindeer antler” street plan in 1945: he simply imposed a reindeer head outline on existing topography, highlighting the natural shape of the land and the way the main roads and railway crossed. The football stadium became an eye, and the reindeer was born.

Lappia Hall in Rovaniemi, designed by Alvar Aalto. Photograph: Universal Images Group North America LLC/DeAgostini/Alamy

Rovaniemi did not have access to financial aid like other warn-torn European cities, because pressure from the USSR had forced Finland to reject the Marshall plan. The Finns were also asked to pay “reparations” to Russia. However, some financial support did come from the United Nations Relief and Rehabilitation Administration and its patron Eleanor Roosevelt.

In June 1950, Roosevelt wanted to visit the Arctic Circle, so the Finns built a log cabin near Rovaniemi airport in a week, furnished with chairs designed by Aalto. They told her it was in the Arctic Circle – although it was actually a little to the south. She sent a letter from the cabin to President Truman – said to be the first posted from the Arctic Circle. The cabin subsequently became a tourist attraction, visited by world leaders including the Soviet premier Leonid Brezhnev and the Israeli prime minister Golda Meir.

As tourism grew, Rovaniemi was rebuilt. The zoning aspect of Aalto’s plan – with different areas for commerce, residential and administration within the lines of the reindeer – was never fully realised. But he did design three buildings for the town’s municipal centre: an undulating concert hall, a town hall (completed by his wife after his death in 1976) and a library that is one of his finest works. There was also a Frank Lloyd Wright-style private home and a commercial block, and he built a small section of housing in the suburbs called Korkalorinne, featuring terraced housing and two large apartment blocks, modelled on the ideas of the British garden city movement.

“This was affordable housing, following the social and healthy British garden city ideas,” says Rautsi. “Aalto remained faithful to these principles his entire life. Being well built, Korkalorinne is a popular place to live today. Concerning home size, Aalto’s main idea was easy to understand: people need more space inside in the dark and cold north than in the sunny south.”

Crowds gather round Santa Claus in Rovaniemi. Photograph: Kaisa Siren/AP

By 1984, Concorde was bringing visitors to Rovaniemi to see the Arctic Circle. That’s when local entrepreneurs created Santa Claus Village. According to Finnish myth, Santa actually came from Korvatunturi (“Ear Fell”), a rock formation shaped like an ear so Santa can hear the wishes of every child in the world. But Korvatunturi is remote and almost inaccessible: more than 200 miles to the north of Rovaniemi, which already had an airport.

A rural-style wooden village was created around Eleanor Roosevelt’s cabin, offering shops, reindeer rides, a Santa, and a post office so visitors could send letters from the Arctic Circle. This is where every letter addressed to Father Christmas ends up – around 700,000 a year.

By the 1990s, the Santa myth had taken over. Even part of one of the city’s nuclear bunkers – built for local citizens by the ministry of the interior – was turned into a subterranean Santa-themed park. Tourists – especially those from China, Israel and the UK, who make up most of the visitors – have taken the Finnish version of Santa to their hearts.

Follow Guardian Cities on Twitter, Facebook and Instagram to join the discussion, and explore our archive here

• This article was amended on 20 December 2018 to clarify the reason Finland did not receive aid under the Marshall plan. An earlier version also mistakenly used a picture of Finlandia Hall in Helsinki, also designed by Alvar Aalto, instead of Lappia Hall.