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<i>The Blind Assassin</i> by Margaret Atwood (Bloomsbury, &pound;16.99, 521pp)

If there were ever any remaining doubts, The Blind Assassin dispels them: Margaret Atwood can do anything and everything with prose. She also does it effortlessly, so that to read her is to be in the grip of a narrative momentum usually associated with popular fiction. This rare combination of verbal felicity and narrative drive, not to mention a mordant intelligence, is what makes her novels so uniquely compelling.

If there were ever any remaining doubts, The Blind Assassin dispels them: Margaret Atwood can do anything and everything with prose. She also does it effortlessly, so that to read her is to be in the grip of a narrative momentum usually associated with popular fiction. This rare combination of verbal felicity and narrative drive, not to mention a mordant intelligence, is what makes her novels so uniquely compelling.

Atwood has long been adept at ransacking genre fiction for her own ends. In Bodily Harm, it was the spy thriller; in The Handmaid's Tale, future fiction; in The Robber Bride, a chilling riff on the gothic transported to the far reaches of the sex wars; in Alias Grace, an astute take on the historical crime novel. In The Blind Assassin, her tenth novel, the genre offered for our and, one suspects, her own delectation is pulp fantasy.

This virtuoso culling of popular forms makes each of her novels a surprise. It is, however, only part of the story - nowhere more so than in this new book, where the pulp fantasy is a lovers' elaborate bedtime tale told within a posthumously published novel, entitled The Blind Assassin, by one Laura Chase. Laura is the dead sister of Iris, the 83-year-old narrator of Atwood's architectonic fiction, who is herself writing a memoir of lives brutally punctuated by two world wars.

Atwood orchestrates these contrapuntal strands without ever missing a beat, to give us a soaring narrative of a century of passionate betrayals, both political and personal. She plunges right in: "Ten days after the war ended, my sister Laura drove a car off a bridge." Why 25-year-old Laura Chase should have willfully or accidentally plunged to her death is the motor of the plot. It is also the engine which drives Iris's memoir.

This takes us into the riches-to-rags story of the Chase family, scions of the small-town of Port Ticonderoga, dominated by their button factory until the Depression washes wealth and jobs and their tormented war-hero father away. In an attempt to save both town and family, Iris is sacrificially sold into marriage with a rich Toronto industrialist, whose Nazi sympathies and political ambitions are the public face of more intimate bullying.

Iris's bones ache with history. Her legs are unstable, her heart more so. Yet her mind, as she evokes the past and scours the present, is as wittily trenchant as Atwood's own. A prisoner of privilege in her youth, Iris's adult days are lived in the long shadow of her sister's tragic death, followed a few years later by the hushed-up suicide of the husband she has divorced.

Laura's posthumous novel has provoked first scandal and then a cult following. Flowers are placed on her grave. Graffiti refer to her. Students and biographers send begging letters, only to receive caustic replies from an Iris shrewd in the ways of secrecy.

Laura's novel, which begins almost as soon as the book itself, is an account of an illicit passion between a Thirties socialite and a labour agitator on the run from the police - and perhaps from his fellow Reds. As sexually charged as Brief Encounter, relentless in its atmosphere of imminent doom or betrayal, this novel-within-a-novel unfolds in backstreet rooms and cheap hotels. Ironically - and Atwood is the high priestess of irony - it is the lavish pulp fantasy the lovers invent to escape from the tensions and tawdriness of the real which frees Laura's novel from the grip of pastiche.

On the planet Zycron, in another dimension of space where there are five moons and three suns, a corrupt regime is in place. Children are exploited to weave intricate carpets. The weaving makes them blind, at which point they become expert assassins. To pay homage to gods no longer believed in, the Zycronites sacrifice virgins made mute by the cutting out of tongues.

Meanwhile, a savage purging horde is moving towards the gates of Zycron's capital, though the greedy inhabitants remain blissfully unaware of its advance. Pulp and fiction, love and treachery, play in and out of each other in a pattern as richly woven as the children's carpets until, at the end, knowledge is so blinding, it can kill.

Atwood's 20th-century Canada is as brilliantly drawn as her fantasy planet. A distant outpost of European wars, it heaves with the tides of other people's histories, all the while creating its own. Workers strike. Factories mysteriously burn down. Foreign agitators are blamed - by newspapers and by a new breed of ruthless capitalists who build up their millions and their power to displace the gentler, paternalist bosses who preceded them.

The sisters are caught up in the tide. Laura, a pure and fiery literalist of the imagination, drowns in it. Iris, dutiful and resentful by turn, lives to tell the far from exemplary tale. Atwood's subsidiary characters are as vivid as her heroines. Winifred Prior, Iris's eventual sister-in-law and interested only in her brother's and her social place, is a sophisticated Toronto fashion-plate and a dynamo of insidious manipulation. Reenie, the small-town woman who tends to the girls after their mother's premature death, is, by contrast, a fount of folk wisdom, as stubborn and loyal as she is Canadian. "Reenie never went in much for God. There was mutual respect, and if you were in trouble naturally you'd call on him, as with lawyers... Otherwise it didn't pay to get too mixed up with him. Certainly she didn't want him in her kitchen, as she had enough on her hands as it was."

In this capacious and generous novel, God and lawyers play their part, along with sisterly tensions, love and loss. Atwood has been shortlisted for the Booker Prize several times. The Blind Assassin, her most daring novel to date, should be the winner.

Lisa Appignanesi's latest novel is 'Sanctuary' (Bantam)