In his marvellous book Imperium, Ryszard Kapuscinski describes a visit to Tbilisi. It's 1990 and Georgians – like other subject peoples in the crumbling Soviet Union – are agitating for independence. On Rustaveli Avenue, women are staging sitins. As well as chronicling political turmoil, Kapuscinski notes Tbilisi's enchanting old town: "A neighbourhood of latticework pastel houses, verandas, balconies and gardens ... Even today [it] has retained in places a touch of its former charm."

When I arrive in Georgia two decades later, the small post-Soviet nation is going through another historical moment. In an election this month, a coalition headed by the Georgian billionaire Bidzina Ivanishvili defeats the ruling party of Mikheil Saakashvili, the country's Atlanticist president. It is an unprecedented result: the first time that power in Georgia has changed hands through democracy rather than by revolution or foreign invaders.

But in old Tbilisi a tragedy is underway. The authorities are rapidly destroying the 19th-century buildings that beguiled Kapuscinski and lend the capital its low-lying wooden charm. The old town is home to a jumble of architectural styles: Russian classical and art nouveau. (None of the buildings here is older than 1795 when the Persians burned Tbilisi to the ground.) Its most distinctive features are wooden balconies – elaborate, rickety, and protruding above narrow cobbled streets, ornate doorways, pomegranates and fig trees.

According to Peter Nasmyth, a British writer and publisher who lives in Tbilisi for much of the year, about a third of the old town has gone. The pace of destruction has increased since 2007. "It's been ripped down, replaced by a Disney-version of itself," he laments, as we embark on a tour of the old town. He adds: "This is the Asian part of Tbilisi. We are losing all these sagging wooden balconies. They are knocking them down and building them in a completely different style. It's heartbreaking."

In May, the authorities began tearing apart one of Tbilisi's most iconic buildings – the "Lermontov House" in Gudiashvili Square. The square is an enclave of dilapidated empire-style mansions and shady acacia trees; I eat a piece of cheesecake on election night in its retro Pur Pur cafe. The Russian novelist is believed to have stayed in the house in the 1820s; it features in his masterpiece A Hero of Our Time. A short walk away is Freedom Square. It is here Ivanishvili supporters celebrate their victory, partying on a roundabout that once boasted a statue of Lenin.

When I arrive I find the house an empty shell. A construction company has ripped off its exquisite multi-sided balcony. Parts of the roof and the staircase banisters have disappeared; no one seems to know what happened to them; in the courtyard, a young man waves the flag of Ivanishvili's "Georgian Dream" party. Over the summer a group of Georgian conservationists stood outside Lermontov's mansion. They blew whistles and held placards saying: "If you destroy this building you destroy us." To no avail.

Nearby in Puri, or Bread Square, I discover a digger. The square's east side has been flattened; the replacement building will be two storeys higher. "This used to be one of the nicest little squares in Tbilisi. The frontage was lovely. One of Europe's most interesting old towns is being massacred," Nasmyth says. Typically, he adds, developers bulldoze a property then replace it with a concrete sham replica, facaded with original bricks. The owners sell up and move out, leaving old Tbilisi increasingly soulless.

Saakashvili – Georgia's architect-in-chief – has his own vision of how Tbilisi should look. His idiom is glass and steel; modernist buildings sprout everywhere. The president lives in a neoclassical palace with a transparent egg-shaped dome; just below it is a new concert hall, like two giant slinkies. Tbilisi also has a mushroom-shaped justice building, a modernist interior ministry and a "peace bridge". Critics complain the president has adopted the same chilly visual language as Georgia's former Soviet oppressors.

Saakashvili, meanwhile, has begun rebuilding the ruined 11th-century Bagrati cathedral in western Georgia, blown up by the Turks. "It's similar to reconstructing Tintern Abbey with brand new walls, a new dome and glass elevator on the side," Nasmymth tells me. And a mock Bavarian-style village has been wrapped around Georgia's largest Sveti Tschoveli church, situated in the old capital of Mtskheta, near Tbilisi. Unesco is alarmed. It has put both sites on its endangered list.

Ivanishvili, meanwhile, lives in a James Bond-baddy-style mansion set in the hills above Tbilisi. Aides nickname it the "glassle". Designed by the futurist Japanese architect Shin Takamatsu, it boasts tubular columns and a giant internal sphere – suspended as if in mid-air. (The sphere is actually a cafe that seats 150 people.) The billionaire's personal residence is next door and looks like an inverted alien spaceship about to blast off.

On the eve of the election Ivanishvili shows me around: works by Henry Moore and other sculptors dot his residence; there is a panoramic view of Tbilisi, twinkling in the valley below; behind us is Tbilisi's botanical garden. Standing next to a softly gurgling fountain Ivanishvil talks fondly of his animals; he has a zoo with penguins, lemurs and a zebra. "Would you like to take a deer home?" he asks me. Two days later Ivanishvili – having won a majority – tears into Saakashvili for wrecking Georgia's architecture. Saakashvili's aides are unimpressed. "Whenever we restore anything we look in the archives first," one, Batu Kutelia, tells me. He adds: "Have you seen Ivanishvili's palace?"