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ST. PETERSBURG -- New Holland, an artificial island built in the 18th century, is one of Russia's greatest hidden treasures. A picturesque complex of canals, basins and 200-year-old brick warehouses in the heart of this city, it was for centuries a military zone off-limits to ordinary Russians.

Now, thanks to President Vladimir Putin, it's being revived. In 2003, he ordered the Russian navy off New Holland and turned it over to the city authorities. They have now hired architect Norman Foster to convert it into a spectacular $378 million arts center with concert halls and a five-star hotel, art gallery and outdoor amphitheater.

"Vladimir Putin has done all he can to raise St. Petersburg's status and restore its former grandeur," said city Gov. Valentina Matvienko in an interview.

As deputy mayor in the early 1990s, Mr. Putin had a dream to turn St. Petersburg into Russia's financial capital and a hub of foreign investment. It never happened. The city looked on in envy as Western money poured instead into its booming rival, Moscow.

Now the tables have turned. Mr. Putin -- who was born and raised in Leningrad, as St. Petersburg was then called -- is leveraging Kremlin power to revitalize his hometown.

He chose it for the site of this month's Group of Eight summit of leading industrial nations, an event designed to showcase Russia's re-emergence as a major power. Last month, the city hosted a glittering conference where Mr. Putin extolled Russia's strengthening economy before an audience of tycoons and cultural icons.

But some have dismissed the city's renaissance as skin deep. "They're building a Potemkin village," said Sergei Gulyaev, an opposition member of the local parliament, referring to Grigori Potemkin, who purportedly had elaborate fake villages constructed for Russian Empress Catherine the Great's tours of Crimea during the late 1700s. In this case, 19th-century facades are being restored with "catastrophic speed" in time for G-8, he said. "But if you look in the courtyards of these buildings, it's another sight entirely."

Founded by Peter the Great in 1703 to defend Russia from the Swedes, St. Petersburg was for centuries the country's "window on the West," a symbol of Russia's aspirations to European great-power status. But its fortunes declined after the Bolsheviks moved Russia's capital to Moscow in 1918.

After the ravages of a World War II seige, St. Petersburg languished in near oblivion, although the city's czarist treasures -- the Hermitage art gallery and Mariinsky Opera & Ballet, as well as bridges, canals and palaces -- continued to entrance tourists. But in the 1990s, as Russia's economic crisis deepened, St. Petersburg fell into further disrepair, while a wave of contract killings earned it the reputation of Russia's criminal capital.

The city is still suffering from decades of neglect. In April, Russia's chief public health official, Gennady Onishchenko, who was checking St. Petersburg's readiness to host the G-8 summit, said it was in a "terrible sanitary state." The rats he'd seen during his last visit in 2003 had never left, he said. "They remember me from then," he added. Ironically, one of the topics world leaders will discuss this month is the global fight against infectious diseases.

Mr. Putin's campaign to raise St. Petersburg's prestige kicked in about three years ago, when Ms. Matvienko, his handpicked candidate, was elected governor. Since then, big state companies have been moving their head offices here from Moscow, vastly increasing the city's tax revenue. They include OAO Vneshtorgbank, Russia's second-biggest bank by assets after OAO Sberbank, shipping company OAO Sovkomflot and OAO Rostelekom, the long-distance phone monopoly. Others, such as natural-gas giant OAO Gazprom's oil unit, reregistered in St. Petersburg for tax purposes. Thanks to all these companies, the city's spending budget has risen to 173 billion rubles, or $6.44 billion, from 73 billion rubles over the past two years.

Investment by state-owned companies is also growing. Gazprom is to build a $600 million business center here, Gazprom City, with a 300-meter-tall office block to house the multinationals now flocking to the northern capital. A shortlist of architects includes Dutchman Rem Koolhaas, who designed the CCTV headquarters in Beijing.

Mr. Putin has also moved the Constitutional Court to St. Petersburg, despite protests from its judges, and released part of Russia's oil windfall to pay for big infrastructure projects in the city, such as a $2 billion highway. There has even been speculation he might move the capital back here from Moscow -- something Kremlin officials insist won't happen.

Foreign money is at last beginning to flow, too: Ms. Matvienko, who earlier this year traveled to the U.S. to court American business, said foreign direct investment has virtually doubled in the past two years. "We've raised the city's economic pulse," she said.

In March, during a Russia-China summit in Beijing, Mr. Putin looked on as Ms. Matvienko signed a $1.3 billion deal with Chinese investors to build a huge residential complex, the Baltic Pearl, in the southwest section of the city -- one of the biggest Chinese investments in Russia to date.

Meanwhile, drawn by tax incentives, global auto makers Toyota Motor Corp., Nissan Motor Co. and General Motors Corp., are building assembly plants here.

But some critics say behind the restored facades and new construction, poverty is widespread and crime is rife: British Ambassador Anthony Brenton was robbed in broad daylight last summer while walking along Nevsky Prospekt, the city's main thoroughfare.

St. Petersburg has also built up a fearsome reputation for racial violence, with frequent attacks by skinhead gangs on African students.

Critics of Ms. Matvienko's huge prestige construction projects say they won't really transform the city, and certainly will bring little benefit to ordinary people. "We're throwing money away that should be spent on hospitals and schools," said Mr. Gulyaev, the lawmaker. He claims a large part of the tax revenue the city will gain from Gazprom's move will go toward subsidizing construction of Gazprom City.

A spokesman for Ms. Matvienko said taxes from Gazprom's oil unit will far exceed the cost of the business center.