It goes without saying that animation is big business in Japan, though it seems to some extent that Western audiences have yet to come to terms with the idea that the "cartoon" format can be utilised to deliver intelligent thought-provoking works for adult audiences, whilst neatly side-stepping the restrictions set in place by adhering to more traditional means of cinematic "realism". It's sad but true, but outside of Japan anime still seems to be the reserve of a select handful of diehard fanatics and has yet to reach its full crossover potential.

Which is a shame, because such completely artificial renderings of reality can hold a lot of advantages in putting forth a director's vision in a completely uncompromised and undistilled format. Most mainstream reactions to less fantastically based works in the medium such as Satoshi Kon's Perfect Blue, or Isao Takahata's Grave of the Fireflies (Hotaru No Haka, 1988) and Only Yesterday (Omohide Poro Poro, 1991) have questioned the need for animation over live-action, but this is missing the point somewhat. As Andrew Osmond once observed in an article on Studio Ghibli for Sight and Sound, on an artistic level the use of animation techniques "foregrounds the sense of a discovered world, one where every realist detail is the work of the artist and storyteller".

Increases in CGI technology have now meant that the possibilities for a complete degree of artistic control over how the film looks need not be the reserve of animation. Witness the Wachowski Brothers' pioneering blend of computer game precision action sequences in The Matrix, or the hyper-realistic visuals of Hironobu Sakaguchi's US-produced CGI showcase Final Fantasy - The Spirits Within. Some industry figures are already predicting the demise of the traditional animated feature as we know it.

The desire to escape the confines of catering for the niche international audience for anime is undoubtedly the motivation for Mamoru Oshii's departure into live action/animation hybrid. Five years since his groundbreaking Ghost in the Shell (Kokaku Kidotai) was held aloft as a touchstone of animated feature making, the director's only recent contribution to the genre has been in providing the script for Hiroyuki Okiura's Jin-Roh: The Wolf Brigade (1999). His latest offering Avalon may share the same thematic concerns as previous work like Patlabor: The Movie (1990) and the aforementioned Ghost (as well as sharing the same scriptwriter Kazunori Itoh, who has also put his name to the recent Gamera 3 and Seijun Suzuki's Pistol Opera), but shot on location in Poland in digitally manipulated monochrome, Oshii's computer-enhanced reality looks like nothing I've ever seen before and represents a groundbreaking diversion for future filmmaking.

Avalon is an illegal computer game, an addictive virtual reality battlefield simulation in which the most adept players are able to win money to support themselves. Ash (Malgorzata Foremniak), a single thirty-something, is one such player. A solo operator of Warrior class and previous member of the notorious Wizard Team, she is legendary in the world of Avalon. Rumours abound of a higher level to the game, Class Special A, entry into which can only occur in the presence of a young sad looking girl, said to be a bug placed in the Avalon program by the 9 Sisters, the game's original programmers. Class Special A is the Holy Grail of Avalon, a level in which the player cannot be "reset" (a euphemism for being killed). When Ash learns from former team-mate Stunner (Bartek Swiderski) that the last person to attempt to reach this higher level was the Wizard's former leader Murphy, whose current status as "unreturned" has left him comatose in a hospital bed in the real world, the desire to find out the truth behind Avalon becomes overwhelming, but to do so she must re-assemble a new team to assist her in her quest.

As with his other work, Oshii's view of technology is wholeheartedly pessimistic. Ghost in the Shell posits a future society reliant upon computer networks for all its economic transactions enslaved by the caprices of a rebellious consciousness that has evolved from a rogue computer virus. His latest vision is similarly a highly feasible extrapolation based on modern trends in technology and its application. The real world that Ash inhabits is bleak and rundown, where those who have fallen through the gaps in the social fabric seek escapism from their humdrum everyday existence through ultra-violent interactive computer gaming, their behaviour goal-directed towards the completely abstract - winning is all that matters. If this is reality, then one can understand to some extent the desire to transcend it, but the virtual world of Avalon hardly seems more palatable; a terrifying war zone in which death lies round every corner.

Oshii's onscreen rendition of the advanced gameworld is nothing short of stunning. Tanks roll across open plains as the players hide out in ruined buildings assailed by helicopters and heavy duty artillery fire. When hit, bodies flatten into 2-dimensional projections before shattering into a myriad of triangular shards. One of the reasons cited for basing the film in Poland was that the cost of utilising the Polish army made these large-scale battle scenes an affordable option. But the use of Polish-speaking actors, using a language which sounds as alien to English speakers as it does to Japanese, is also a positively inspired aesthetic decision, and the Polish locations (shot by local cinematographer Grzegorz Kedzierski) work extremely effectively in the outside reality scenes too, oppressive and nightmarish as they are.

Oshii has declared an admiration for post-War Eastern bloc cinema as his main inspiration, particularly the work of Andrzej Wajda, director of such films as Generation (Pokolenie, 1954) and Kanal (1957). Indeed, the name of Oshii's protagonist may well be a playful reference to the title of Wajda's third feature, Ashes and Diamonds (Popiol i Diament, 1958), although it could just be a tongue-in-cheek jibe at the current direction of anime - Ash is also the name of one of Pokemon's human trainers!

Avalon's main point of interest is its use of digital manipulation to investigate Ash's various levels of reality by selectively stripping away the colours from the image, rather than adding to it. The majority of the 'reality' scenes vary between stark monochrome and sepia toned, with more colour filtering through to the image the further Ash is from the coldly inhuman technology of Avalon's false paradise. After a violent "reset", our heroine returns to her bare apartment to prepare herself a meal, the cabbage a lush field of green against a grey background as she slices into it to serve alongside a luridly bloody hunk of red meat. Compare this to the colourless, tasteless slop that gets served up at the end of the food queue in the Avalon canteen. Ash's later emergence into Class Real is almost overwhelming.

Avalon is an undeniably outstanding accomplishment. Its mindblowing visuals and operatic score (courtesy of Kenji Kawai, composer of Ghost in the Shell and the first two Ring films) will leave you bowled over, though unfortunately it is let down by an oblique, almost disdainful approach to character and pacing resulting in a film that impresses far more than it involves. Regardless of whether this gaping void at the heart of the narrative is intentional or not, the film comes across as cold and impenetrable beneath its hard-edged exterior, and though Itoh's script prompts fascinating questions, few of these are resolved by the end in a needlessly protracted and the dramatically rather flaccid denouement.

On a technical level at least, Avalon is a landmark film and definitely one to see on the big screen should the opportunity arise, though its lacklustre performance at the Asian box office and ambivalent reception at this year's Cannes make this seem an unlikely option.