While Christmas is the season when traditional theatres trot out the tired clichés of panto, the ever-innovative National Theatre Wales have decided, in their wisdom, to stage a surreal, psychedelic theatre-gig at the Sophia Gardens cricket ground in Cardiff. Based on an idea originally conceived by Super Furry Animals frontman Gruff Rhys, artist Pete Fowler and graphic designer Mark James that has already spawned Rhys’s 2007 solo album Candylion, the "insatiable, inflatable" and very much larger-than-life version sees the musical polymath reteam with writer Tim Price and director Wils Wilson (the trio worked together on 2013’s Praxis Makes Perfect, also for NTW).

At first the only perceivable difference between the Candylion set and an average mid-sized gig venue is that the "musical stage" is an island surrounded not only by audience members but also by theatrical staging, replete with floating fluorescent clouds. When the cast arrive, things soon take a different direction. In Pixel Valley we meet Polar Pear (half polar bear, half pear), Cheffyl (half chef, half horse – "ceffyl" is Welsh for horse) and, perhaps most bizarrely, Meringutan (half orangutan, half meringue). At first the show seems like a synthpop-soundtracked pilot for a CBeebies show sidelined for being too wacky – that is until Candylion (half candyfloss, half lion – obviously) makes the mistake of eating a "negative vibe".

It is a world very much out of Rhys’s madcap imagination; despite his roots in the vibrant Welsh-language music scene, Gruff’s vision, even since Ffa Coffi Pawb and the early days of Super Furry Animals, has clearly been heir to the psychedelic side of the late Beatles and that entire tradition that juxtaposes the ordinary and fantastical in a mode that turns silliness into genius: this is Edward Lear meets Toy Story, Magical Mystery Tour meets The Magic Roundabout, the Chronicles of Narnia meets Yellow Submarine.

What turns Candylion from a mildly amusing knockabout into a quietly brilliant achievement is not only the blasé sense of ambition born of its creators’ confidence in their own collective and considerable ability, but the way it blends its disparate elements together.

It holds up as a gig, a panto, a serious piece of theatre, a political statement and a good night out. It risks self-indulgence, cringe, and alienating one or both of its intended audiences, yet comes out warming the cockles of even the most hipster of hearts. Gruff himself, of course, together with his wonderfully eclectic band, is central to its disarming charm, but a special mention needs to be given to Remy Beasley (pictured above) – Candylion herself – who shines radiantly throughout, the magnetic centrepoint of a very strong cast. (Pictured below: Gruff Rhys, Dyfrig Morris and Matthew Bulgo.)

Tim Price’s script is perfectly pitched: the simplest of narrative arcs is underscored by a political subtext that draws much appreciation from the local audience. Particularly poignant among the salutary tales is the "Poorly Pillow", which the characters share, "free at the point of use". When Candylion doesn’t get her own way bullying her former friends into working the candy conveyer belt, in a rage she starts pulling out the stuffing of what is, to all intents and purposes, the NHS.

But despite jaunty ditties about "turbo-capitalism", the politics is presented much less overtly than the creative team’s last anti-fascist outing for NTW. It is surely no accident, however, that the one "hybrid animal" who returns from exile in the Cone Zone to play a part in saving Pixel Valley and (spoiler alert!) redeeming Candylion – shares his name with the Welsh First Minister. Caruin (Carwyn?) is half-carnation, half-penguin. Of course.

It is yet another confirmation of the way NTW, over the last half-decade, has reflected – and played a part in creating – the growing confidence of Wales as a nation. This is the 32nd and final show under the company’s visionary artistic director John McGrath, and given that the company’s very first show, A Good Night Out in the Valleys, began with Boyd Clack in a chicken suit, it is fitting send-off for McGrath to bow out with a five-star show and an all-singing, all-dancing cast of super furry animals.