"You taught me language," says Caliban in The Tempest, "and my profit on't/ Is, I know how to curse." As Caliban knows to his disadvantage, language is a species of exchange, a transaction in which you might hope to turn a profit as well as a phrase. With the implicit curse they deliver in and on an acquired tongue, the lines also suggest how language and power go together on Prospero's island, and remind us how quickly an exchange of words between colonist and colonised can give way to an exchange of fire.

China Miéville's impressive new novel also deals with the unpredictable potencies of language, and of fictional language in particular. Its science-fiction setting has a lot in common with Prospero's realm, rising out of imagination as an unearthly place transformed by the rough magic of exceptional speech. In some ways, it's a place that Shakespeare's sorcerer might recognise, filled with strange beings, political intrigue, stirrings of revolution, and powerful voices echoing in its unbreathable air.

After the darkly comic departure of 2010's Kraken, Embassytown returns to some of the preoccupations of Miéville's seven prior well-received novels: urban division, reflections and doublings, subjugation and propaganda. In his last but one  The City & the City  the two titular cities coexisted in identical space, kept apart by the careful indoctrination of each one's citizens to ignore the inhabitants and urban fabric of the other. It was a brilliant, Borgesian idea, but it was also a good metaphor for Miéville's writing, in which there's usually more going on than meets the eye.

Embassytown perches on Arieka, a planet at the edge of known space, within a larger city that is home to the indigenous Ariekei, known to the human colonists as "Hosts". Humans have long since left Earth, spreading across the universe as "homo diaspora" and travelling light years through an omnipresent sub-space dimension they call the "Immer". Over time, humanity and the Ariekei have developed and sustained good relations, establishing a barter economy around the living biotechnology that the Hosts "farm" elsewhere on the planet's surface.

Though he delights in conjuring an HR Gigerish vocabulary for the organic-mechanical "flesh-matter" of alien architecture and technology, Miéville remains shrewdly vague on the subject of alien anatomy: the closest he gets is a description of the Ariekei as "insect-horse-coral-fan things". But he has imagined them brilliantly and compels us to do the same. They seem to have a wing that hears and a wing that manipulates. They seem to have a number of eye stalks. Most importantly for the novel, they have two mouths which simultaneously speak "Language", a sign-system in which the truth of the world and speech itself are, in some profound way, indistinguishable. "For Hosts, speech was thought.  Without Language for things that didn't exist, they could hardly think them, they were vaguer by far than dreams." Copying the Hosts' doubleness, the colonists have bred sets of cloned "doppels" linked by genetics, chemistry and implanted biotechnology, and trained them to speak the double-voiced Language. Able at last to communicate, they make a surprising discovery: the Hosts, whose words are inseparable from their world, cannot lie.

The Ariekei, for their part, find human lies fascinating. Seeking to expand their range of expression, they persuade a few willing humans to perform memorable actions that they can then speak as similes. They organise contests in which truth-bound Hosts attempt to master the art of deception, calling them "Festivals of Lies" or  in one appealing if incongruous turn of phrase  "eisteddfods of mendacity".

The narrator of Embassytown, Avice, is one of the few trained pilots who crew the ships plying the trade routes through the Immer. As if to demonstrate the inculcated assumptions of a familiar vocabulary, the opening sections of the novel fire off a bewildering volley of neologisms: miabs and corvids, trids and turingware. Miéville doesn't gloss these: born in Embassytown, Avice is naturally familiar with its jargon, in which the "Immer" and its shadow  normal space, the "manchmal"  are only the basics. Lexically, there are enough glimpses of familiarity to prevent any protracted confusion ("Immer" and "manchmal", for instance, are clever borrowings of the German for "always" and "sometimes") but the disorientation, surely, is part of the appeal. Holding out against the disastrous temptations of the sci-fi info-dump, Miéville opts for a slow accretion of detail and implication until a universe coheres. By the time Avice recalls her first nausea-inducing "Immersion", we have a good idea how it feels to be thrown suddenly into an unfamiliar world.

The originality of Embassytown arises partly from its fusion of two traditions in which the complicity of language and power has been examined and worked through with particular urgency. The first, of course, is science fiction, and here Miéville earns his place in the long line of politically oriented writers  Orwell, Burgess, Delany, Lessing  who have made art out of the divide between their own language and an imagined idiom. The other is post-colonial fiction, with its reformations and repudiations of the languages imposed by foreign power. In this sense, Embassytown plays out as a novel of metropolitan-colonial conflict, holding out the hope that language might not serve only as a tool of oppression, but be reclaimed as the instrument that makes resistance possible.

Lies, after all, have their uses, as a character in Embassytown realises while listening to a Host struggling to tell one: "It's training itself into untruth  using these weird constructions so it can say something true." To read fiction is, in some measure, to take those true untruths for granted, which makes it a paradoxical pleasure to come across a novel that reminds us so ingeniously and enjoyably of the conditions of fiction, and of the power that fictional language retains to shape and reshape our transactions with the world.

Some authors fill a novel with futuristic scenery and jargon and then strenuously, even stertorously, deny that it's science fiction. No, no, they don't write that nasty stuff, never touch it. They write literature. Though curiously familiar with the tropes and conventions of the despised genre, they so blithely ignore the meaning of terms, they reinvent the wheel with such cries of self-admiration, that their endeavours seem a doomed effort to prove that one can write a novel without learning how.

China Miéville knows what kind of novel he's writing, calls it by its name, science fiction, and exhibits all the virtues that make it an intensely interesting form of literature. It's a joy to find this young author coming into his own, and bringing the craft of science fiction out of the backwaters where it's been caught lately between the regressive drag of publishers marketing to a "safe" readership and the bewildering promises of change and growth offered by postmodernism in all its forms and formlessness. Embassytown is a fully achieved work of art.

Only the trash forms of science fiction are undemanding and predictable; the good stuff, like all good fiction, is not for lazy minds. Where the complexity of realistic novels is moral and psychological, in science fiction it's moral and intellectual; individual character is seldom the key. But Miéville's characters are deftly sketched, and his narrator-protagonist, Avice, is a subtler portrait than she seems at first. Nothing in her behaviour offers conventional signals of femininity or unfemininity, an indication that gender may be differently constructed when humanity finds itself dealing with genuine Others.

There are men right now who have never learned how to talk to women. How will we talk to somebody really different  aliens? The Ariekei of Embassytown are immensely unlike us. The problem of communication, the nature of language and of spoken truth, is the novel's core.

When everything in a story is imaginary and much is unfamiliar, there's far too much to explain and describe, so one of the virtuosities of SF is the invention of box-words that the reader must open to discover a trove of meaning and implication. The imaginative leaps involved in decoding such inventions and appreciating their wit can give a reader much pleasure. Miéville sets the bar rather high  I still haven't figured out what a miab is  but most of his neologisms come clear with a nice shock of revelation. My favourite is the immer, which is to our space-time reality as the sea is to our lands: therefore, to travel through space is to immerse. Other elegant images follow, for this is a book by a writer who loves language. And then there are new twists on ordinary words  such as Avice's realisation that she is a simile. Before she could speak the Ariekei language, they made her part of it, a figure of speech, like our boy who cried wolf. She is "the girl who ate what was given her".

The Ariekei want similes because their language, which is innate, does not permit lying. Like Swift's Houyhnhnms, they cannot speak that which is not. This contradicts the nature of language as we know it  language is a wonderful vehicle for untruth and perhaps a necessary vehicle for invention, the leap to the not-yet-existent. But why should all language be like ours? The Ariekei have got on very well with only truth, cultivating a high bio-technology that Miéville describes with gleeful poetry, the living houses with their parasitical furniture, the great farms lurching over the countryside behind their keepers . . . I wondered how the Ariekei thought of making such creatures if they can think only of what is, but that question may be indirectly answered: it seems they crave that which is not, the unthinkable untruth, the lie.

Our species has put a colony on their planet, and we are certainly well qualified to teach them how to lie. They are eager to learn but no good at it at all. A different kind of human ambassador is sent to Embassytown, one who can give them what they want  or an intoxicating imitation of it, a misuse of their language producing a kind of false lie. Such paradoxicals, once heard by the truth-tellers, act on them like heroin or meth  utterly destructive of their grip on reality, and fatally addictive.

The picture of a society shaken, shattered, wrecked to the foundation by a universal drug addiction infecting even the houses, even the farms, for they are all biologically akin, is apocalyptic vision on the grand scale  curiously beautiful, alien in every vivid detail, yet psychologically and socially only too familiar. Science fiction, like all fiction, is a way of talking about who we are.

The story, at first a bit hard to follow, very soon attains faultless impetus and pacing. If Miéville has been known to set up a novel on a marvellous metaphor and then not know quite where to take it, he's outgrown that, and his dependence on violence is much diminished. In Embassytown, his metaphor  which is in a sense metaphor itself  works on every level, providing compulsive narrative, splendid intellectual rigour and risk, moral sophistication, fine verbal fireworks and sideshows, and even the old-fashioned satisfaction of watching a protagonist become more of a person than she gave promise of being. And all along we thought she was only a simile . . .

Ursula K Le Guin's Lavinia is published by Phoenix.