China Miéville is perhaps the current generation's finest writer of science fantasy, that beguiling genre for which JG Ballard and M John Harrison have produced so much of their fiction. Miéville's first novel, King Rat, was a grim urban horror story about contemporary London. His later work is primarily set in the alternative world of Bas-Lag - ambitious novels such as Perdido Street Station and Iron Council, packed with grotesque characters, gorgeous imagery, amazing monsters, political parables and intricate plotting.

The City and the City is very different. It takes place in our familiar world, a post-Soviet locale which draws on string theory for its ideas and conventional experience for its story. Apart from one exceptional detail, this book could be a clever mystery story told from the point of view of a Balkan policeman struggling to cope with the problems of a society burdened by traditions and attitudes from its recent authoritarian past. Featureless concrete, rattling trams and antiquated office equipment invoke Greene's The Third Man and Vienna's zones of occupation. You can almost hear a zither twanging somewhere in an echoing sewer.

Playing off the current theoretical physicists' notion that more than one object can occupy the same physical space, Miéville demonstrates a disciplined intelligence reminiscent of the late Barrington Bayley (who specialised brilliantly in scientific implausibilities), helping us to hang on to the idea that the city of Beszel exists in the same space as the city of Ul Qoma. Citizens of each city can dimly make out the other, but are forbidden on pain of severe penalties (administered by a supreme authority known simply as Breach) to notice it. They have learned by habit to "unsee". The cities have different airports, international dialling codes, internet links. Cars navigate instinctively around one another; police officers cooperate but are not allowed to stop or investigate crimes committed in the other city.

Subtly, almost casually, Miéville constructs a metaphor for modern life in which our habits of "unseeing" allow us to ignore that which does not directly affect our familiar lives. Yet he doesn't encourage us to understand his novel as a parable, rather as a police mystery dealing with extraordinary circumstances. The book is a fine, page-turning murder investigation in the tradition of Philip K Dick, gradually opening up to become something bigger and more significant than we originally suspected.

Though Kafka is predictably invoked by the publisher, this is in no way an absurdist or surrealist narrative. All mysteries and events are either explained or open to explanation; the protagonist, Inspector Borlú of the Beszian Extreme Crime Squad, is a dogged discoverer of the truth, frustrated by but accepting Breach's rules, which we see early on demonstrated in all their stern inflexibility.

A young woman's body is found on a rundown housing estate and Borlú is assigned to the case. Pretty much from the beginning he realises there's something unusual about the murder; he's convinced that it involved illegal passage between the two cities and is thus a matter for Breach. Someone with power, maybe a politician, is keeping it as an ordinary police case. But why? Soon Borlú's investigations lead him to request official permission to follow up inquiries in co-existent Ul Qoma; after considerable bureaucratic rigmarole, he meets his rather condescending opposite number, who escorts him across the border from one reality to the other.

The wealthier city has succeeded in getting better foreign investment. North American archeologists have been discovering mysterious remains there for some years. The murdered girl had been participating in a dig which clearly plays a crucial part in the mystery. Under the influence of her team's senior archeologist (who now strenuously denies any such belief) she became convinced that a third city, Orciny, exists in the interstices between one city and another, unseen by occupants of both and guarding its secret by means of cynical violence, perhaps in direct opposition to Breach or even identical to it.

Steadily, Miéville thickens his plot with exceptional mastery. Next, evidently terrified of something, the senior archeologist disappears, maybe taken by those mysterious Orcinians whose artefacts he's helped to uncover. A friend of the murder victim is next to vanish. Against their wills, Borlú and his partner begin to believe in Orciny, and ultimately events force Borlú into contemplating an act of Breach. But Breach severely punishes all transgressions, no matter what their motives or status. Those who defy Breach usually disappear for good. Even those who commit Breach accidentally are found with their memories wiped. Why does it have to be so unforgiving?

Despite the violent deaths of those he seeks to help or interrogate, and a growing fear for his own life, Inspector Borlú slogs on in pursuit of the truth as the book moves remorselessly towards its extraordinary denouement. As in no previous novel, the author celebrates and enhances the genre he loves and has never rejected. On many levels this novel is a testament to his admirable integrity. Keeping his grip firmly on an idea which would quickly slip from the hands of a less skilled writer, Miéville again proves himself as intelligent as he is original.

• The Best of Michael Moorcock is published by Tachyon.