Boutique hotels and designer bars are taking Phnom Penh upmarket. Andrew Spooner reports

'You want to buy a newspaper?" asks the street kid in perfect English as I sit eating a bowl of noodles. "OK if you don't want to buy. I will rent to you. Only 1,000 riel. It costs 4,000 to buy, so this is a good price. You can read for one hour. Then I will come back and collect it." As I've only just begun slurping on my noodles, I hand over the cash and get something to read.

Given the destruction that Phnom Penh endured, witnessing the creative entrepreneurial skills of some of its poorest inhabitants is certainly inspiring. At last, it seems as though a new identity is emerging from the City of Ghosts. What is even more surprising is that Phnom Penh is becoming decidedly sophisticated.

"Here's your passion-fruit crème brûlée," says the sleek, black-clad waitress. I'm sitting outside Metro, one of Phnom Penh's most popular upmarket watering holes. On the menu is an array of Asian fusion nibbles and the kind of cocktail list you'd expect in London. Yet, what London can't provide is the view – Metro is on Sisowath Quay, a riverside road that fronts directly on to the point were the Tonlé Sap and Mekong Rivers meet.

To grasp the full potential of Sisowath Quay you have to get up before dawn and head to the Foreign Correspondents' Club (FCC). With its open-walled café providing full access to the light and air of the rivers, the FCC serves its breakfast with a staggering sunrise. "We even have a few rooms for rent," says operations manager, Michelle Duncan, "and we've just opened a new designer boutique property called The Quay just a bit further down the river."

In Phnom Penh, boutique hotels are springing up like mushrooms. Many of the colonial-era French villas were left intact by the Khmer Rouge and are now being turned into funky places to stay and eat. The Cambodian capital seems to be faithfully sticking to the original small, independently owned spirit of boutique hotels, unlike many of the huge hotel chains.

"When I first arrived here I never intended to be a hotelier," says Eric Weisman, a former movie producer from Los Angeles. Eric's property, the Scandinavia Hotel, on Street 282, is a small villa in central Phnom Penh with a resident modern art gallery, a cute, kidney-shaped pool and a low-key, designer vibe that uplifts without being pretentious. But where did the name come from? "The place used to be owned by a Scandinavian expat who wanted to create a party place for his biker pals. It took a while to restore the reputation," says Eric with a grin.

Phnom Penh's other boutique places have a similar independent streak that doesn't always hit the mark. On the plus side there's the Spanish-managed Boddhi Tree Aram, a tiny, stylish eight-room villa, buried away on Street 244, which has become one of the most sought-after places to stay. Then there's The Pavilion, an elegant property that has a mixed reputation largely due to a Fawltyesque management style. Back on Sisowath, and probably the pick of the bunch, is the sumptuous Amanjaya – the corner suites have the best riverside balconies in the city.

Phnom Penh also hits home on the culinary front. The bizarre North Korean government-run Pyongyang on Monivong Boulevard – arrive in time for the surreal nightly 8pm song and dance show – serves up fantastic bulgogi steak, while the Spanish flavoured Pacharan, on Sisowath, is a revelation. "Seafood is so cheap here," says my waiter, as a massive paella arrives. "We can make it even bigger than we would back in Spain."

Soothed by the evening air of the Mekong, I've found my own little bit of heaven. I order a coffee and unwind. All I need is something to read – does anybody have a newspaper to rent?

How to get there

Travelmood (0800 8408 305; ) offers return flights to Phnom Penh via Doha and Bangkok with Qatar Air from £679 between 5 January and 31 March 2009 if you book by 30 November. The FCC ( ) has double rooms from $90 (£60) per night.