Beyond the high-profile title fight between The Shape of Water, Three Billboards Outside Ebbing, Missouri, and Lady Bird, the most intriguing battle at tonight’s Oscar ceremony will be for best foreign language film. The diverse contenders include Ildikó Enyedi’s ethereal On Body and Soul from Hungary; Ziad Doueiri’s provocative The Insult from Lebanon; and Andrey Zvyagintsev’s bleak Loveless from Russia. The bookies’ favourites, however, are Ruben Östlund’s Cannes Palme d’Or winner The Square from Sweden, and the Chilean entry A Fantastic Woman, a bold and moving love story from Gloria director Sebastián Lelio with a mesmerising central performance by rising star Daniela Vega.

Vega plays Marina Vidal, a waitress and aspiring singer whom we first meet performing a popular song (“Your love is like yesterday’s newspaper”) with cool, alluring confidence. As she sings, her eyes meet those of her lover Orlando (Francisco Reyes), an older man who radiates adoration in Marina’s presence. Gliding cameras and rich colours celebrate their relationship, sensual and full of vibrant life. At a birthday dinner, Orlando promises Marina a trip to the Iguazu Falls, one of the seven natural wonders of the world (the implication being that she is the eighth). Under shimmering lights, the couple dance; at home they make love. And then Orlando collapses and everything starts to unravel.

A magnetic screen presence, Vega is called upon to unify the film’s shifting moods – no mean feat

What follows is a series of exclusions as Marina finds herself shut out of her former life. At the hospital to which Orlando is rushed, she is told to leave the examination room and forced to wait outside in a space labelled a “dirty zone”. Soon Orlando’s family descend, banning Marina from the wake and funeral, demanding the return of Orlando’s car, and turfing her out of the flat where the couple lived together.

The cause of their hostility is clear; as a transgender woman, Marina is simply an unacceptable presence, someone whose very name seems to threaten their “normal” lives. At the hospital she is treated like a criminal, first by doctors, and then by a police sergeant who brusquely insists that she prove her identity. “I don’t get what you are,” sneers Orlando’s son, Bruno (Nicolás Saavedra), while repeatedly refusing to get her name right. Orlando’s ex-wife, Sonia (Aline Küppenheim), goes further, pointedly calling her Daniel and telling her that her relationship with Orlando was just a “perversion”. Yet through it all she remains defiantly Marina – her name echoed in the water motifs that flow through the film; from the stormy seascape that adorns the wall of her bedroom, to the haunting song (“time keeps flowing like a river to the sea”) to which she dances with her love.

The style of the film is equally fluid, moving from modern romance via social-realist drama to quasi-Lynchian detective thriller, the last signalled by the discovery of a key that leads the narrative down a rabbit hole. At one point the drama shifts into levitating musical fantasia, with our heroine flying upward toward the camera. And beneath it all is a ghost story, the image of Orlando haunting his love, reflected in glass – so near, yet so far away.

Marina too, seems trapped in a liminal netherworld, constantly caught by her own mirror image. To Sonia she is merely “an illusion”; to Bruno she is a monster. Yet having signalled her as “fantastic”, Lelio and co-writer Gonzalo Maza invest Marina with an almost mythical resilience, sending her on a voyage into the underworld from which she must emerge strengthened and renewed. In one dreamy sequence she battles an impossible windstorm on a city street. In another, she follows an apparition deep into the kingdom of the dead. The film’s story may be firmly rooted in everyday reality, but there is a fable-like quality to its telling that adds a layer of transcendence.

Comparisons with Almodóvar are inevitable, although Lelio casts his net wider, citing Hitchcock and Louis Malle as influences alongside Buster Keaton and Busby Berkeley. Matthew Herbert’s spine-tingling score moves from Bernard Herrmann-esque romance to something closer to science-fiction, perfectly capturing the changing tones of the drama.

At the centre of it all is Vega, upon whose face cinematographer Benjamín Echazarreta focuses closely for much of the film. A magnetic screen presence, Vega is called upon to unify the film’s shifting moods – no mean feat. It’s a challenge to which she rises with ease, capturing our attention, engaging our sympathies, and stealing our hearts.