Gansu, China -

e may be in the middle of one of the most intensely spiritual festivals of the Tibetan calendar but 11-year-old Xiao Ji has money on his mind. "Hmm, from England?" he muses as he helps me on to his creaky wooden stool. "The English have pounds – and those little gold coins," he says dreamily. As I rise above several thousand pilgrims, two masked monks appear with their hands raised towards the heavens. They spin to a slow drumbeat as four gigantic horns send a doom-laden melody echoing around the temple forecourt. I look down to my young friend to seek an explanation but he has other concerns. "Five kuai for half an hour," he demands, gesturing toward the stool. "Or one pound for two hours."

For the 1,000 monks of the Labrang Monastery, the cham dance we are watching is a day-long ritual of holy deliverance. Due to the lack of stadium facilities and the size of the crowd, it also happens to be a day when a creaky wooden stool is worth its weight in gold. Xiao Ji breaks off from finalising our deal to argue with a Beijing photographer about precisely when his half-hour began. The wind suddenly picks up, causing a plume of dust to drift elegantly across the makeshift stage. To my left, a Muslim clutches his white skullcap with one hand and sells popcorn with the other. To my right, a puppet tiger is bobbing through the massed ranks of spectators, accompanied by two grinning teenagers who randomly whip onlookers with crowd control sticks. The content of the performance may be hauntingly sombre but out here in the audience the mood is reminiscent of a rock festival.

Life in Xiahe, a Gansu town some 2,900 metres above sea-level, is not usually like this. It's better known for religious piety than heaving crowds – small wonder when it's hidden in the bottom of a valley, an awkward five-hour drive off the well-trodden Silk Road trail. A once dusty backwater may have been transformed by a concrete makeover and a newly paved access road through the beautiful mountains, but restaurant and hotel facilities remain primitive and hot water is a luxury, even at the best hotel in town.

Fortunately, nobody comes to Xiahe for creature comforts. They come to witness the fascinating cultural contrast between its Hui Muslim and Tibetan Buddhist communities. In summertime, they come for hiking and horseriding in the surrounding hills and grasslands. Most of all, they come for the spectacular, 300-year-old Labrang Monastery. And once a year, at least, they come for the Great Prayer Festival of Monlam when, despite freezing temperatures, the town is transformed by a mesmerising mixture of ritual and riotous fun.

The 13th morning after Tibetan New Year heralds a dawn like no other. The motorbike horns that perpetually ring out along Xiahe's main drag become more intense. The Tibetan karaoke that booms from streetside speakers is cranked up a notch and the pavements leading uphill to the monastery are transformed into two catwalks, filled with a dazzling array of costumes as Tibetan farmers arrive en masse, clad in their festival best.

It's 8.30am and the rising sun is beginning to pour a yellow glow down the slopes of the distant, snow-peaked hills. Here in the valley, we're still in the shade. In a dumpling restaurant, a pallid scene is transformed as the sun hauls itself above the parade of shops opposite. Through a swirl of steam and cigarette smoke, a beam of sunshine spotlights an elderly man. He's wearing an extravagant fur hat and heavy sheepskin cloak, festooned with pinks and greens. He stares straight at me, taking in the white trainers, blue jeans, knitted scarf and beanie hat as if I was a bizarre museum exhibit placed there for his personal amusement.

Half an hour later, it's my turn to stare. I am standing in four inches of snow on the southern boundary of the monastery, watching 50 monks abseiling down an icy embankment. Sai Dafo (sunning the Buddha) is the unfurling of a 600 square-metre cotton tapestry, or thangka, and the opening act of the four-day festival. A protective cloth is peeled open and the rising sun creates an iridescent halo above the image of Buddha's face. The timing is perfect. After the ceremony, the cloth is re-furled and snakes its way back down the hill on the monks' shoulders, assisted by chanting, percussion and the jostling of a sea of spectators. Pilgrims fling themselves at the sacred coil or onto the snowy ground, prostrating themselves in devotion. One man is overcome with tears.

"The day is about letting the maximum number of people give their wishes to Buddha," says Jemtu, an English-speaking monk, shortly after the commotion has died down. This partly explains the decision to move the display area from its original mountainside location to a more prosaic embankment just south of the Daxia River. Year on year, more pilgrims – and tourists – flood into Xiahe during this most holy of weeks. No official tally is kept but today's crowd looks to be in the region of 10,000. By Xiahe standards, the occasion has an epic scale.

Fortunately, there's still plenty of breathing space. Labrang is regarded as one of the great lamaseries of the Gelugpa (Yellow Hat) sect of Tibetan Buddhism and is the largest Tibetan monastery outside of Tibet itself. The 18 resplendent prayer halls, six dedicated colleges and their attached courtyards make for a fascinating stroll away from the crowds. In their rich hues, the buildings – like so much else in Tibetan art – radiate warmth, from the auburn brickwork all the way up to the golden roofs. As a freezing mountain wind soughs softly through the drapes that hang above each window, monks scurry among the sun-baked buildings, endlessly hitching up their bright fuchsia robes. The azure sky completes a remarkable fusion of colour.

That Labrang's charming warren of courtyards and alleys remain so quiet – even at the height of festivities – is partially thanks to the kora. When not attending organised religious events, Monlam pilgrims can be found walking the mile-long path around the monastery's circumference. Every member of the stream of worshippers pushes each of the 1,174 prayer wheels as they flow past, some giving a huge heave, others the barest of touches. During Monlam there is perpetual motion – and creaking – to accompany the sound of thousands of shuffling feet.

These solemnly observed circuits represent a culmination of a journey that, for many, has lasted weeks. For the majority of Tibetan pilgrims from this border region of Gansu and Qinghai, their chief motivation is to accumulate merit (sonam) or good luck (tashi) for the next life. In Tibet there may be countless sacred regions but for those living within a several-hundred kilometre radius of Xiahe, Labrang is perhaps the greatest destination they hope to see in this lifetime. 

The esoteric nature of Tibetan ritual deepens on day two of Monlam. Of all the words routinely used to describe cham, 'dancing' is the most unfortunate. The performance begins with a discordant, disconcerting trumpet fanfare. For six hours, some 35 monks, each wearing a terrifying mask, take turns making carefully choreographed steps around chalk circles in moves more reminiscent of tai chi than the tango. For the final three hours, the entire cast takes to the temple forecourt, with Yamma – the Lord of Death – directing proceedings from the centre.

The setting of the sun marks the explosive denouement of a long day. As the shadows grow long, a legion of monks march west out of the temple forecourt, surrounded by horseback riders and a cacophony of firecrackers. A huge fireball suddenly sends spectators running for cover: a wax effigy, burdened by the accumulated evil spirits of the day, blazes away. With its disintegration, victory is won. The layered symbolism of the act – the destruction of the ego, perhaps – is secondary to the sheer excitement of being part of the frenzied throng.

The masks, the music, the fire – even the chalk patterns – all resonate with Judeo-Christian symbols of Satan and an unsettling aura pervades the arena, even after the performance has come to an end.

"So, today's dance celebrates the death of Yamma?" I ask one monk standing beneath a huge portrait of the star of today's show.

"No, no, no," replies the monk, unable to conceal his shock. "Yamma's dance is to scare away death. He protects us."

As I gaze up at the picture, it dawns on me that we are operating on completely different planes of understanding. The conversation stalls as I try to explain why I had assumed a man with two horns, three eyes, four fangs and a cap encrusted with skulls was working for the dark side.

Then again, a measure of confusion does nothing to mar the experience of Monlam. For many tourists, the festival is a precious occasion of wonder that upstages most things their travels have thrown at them. It's occasionally unsettling, but more often beguiling and beautiful, particularly on the last two days when the mood lightens considerably with butter lamp displays and a jubilant final procession.

Labrang's mysterious inner workings dictate the rhythms of life up here in the mountains of Gansu and the visitor can't fail to be captivated by its spirituality, especially during Monlam. For four days, the soul will be flying high but the fever-pitch intensity may leave the body weary – especially given Xiahe's limited tourist facilities. If worldly aches and pains begin to nag, your best bet could be to track down Xiao Ji and ask after his wooden stool. Assuming, of course, you have some little gold coins left.