It is seven years since Alan Hollinghurst won the 2004 Booker prize for The Line of Beauty, his Jamesian account of an 80s arriviste moving in high Tory circles. That novel confirmed his reputation as an acute chronicler of gay experience and its subterranean relationship to English networks of social and political power. His substantial new novel extends this project, sumptuously retelling a familiar narrative of English decline through a series of friendships and encounters which form a sort of daisy chain of erotic and literary influence, stretching from the long Edwardian summer before the first world war to the present day.

The novel deals with the short life and posthumous reputation of Cecil Valance, a Georgian poet whose lyrical outpourings are given huge poignancy by the carnage of the trenches. In the opening section, Valance, the scion of an aristocratic family, visits the family home of his Cambridge friend and lover George Sawle. The name of this house ("Two Acres") and its location (rural Stanmore, soon to be absorbed into the suburban sprawl of London's metroland) locate the two men very precisely in the English class hierarchy whose dissection is one of Hollinghurst's main fictional preoccupations. George's discreetly alcoholic mother and starry-eyed 16-year-old sister, Daphne, are filled with wonder that such a glamorous youth, already a published writer, will be visiting them. While at Two Acres, Valance writes a long poem, ostensibly addressed to Daphne, which is destined to enter the canon, ensuring that the events of the weekend, which are described with tenderness and sensuous immediacy, will be pored over by generations of academics and admirers, their true contours gradually disappearing into a bibliographic haze.

The novel's title is taken from Tennyson's "In Memoriam A.H.H.", a high Victorian elegy to male friendship. The poet (who figures in a Sawle family anecdote, and hovers more generally over the novel as a sort of tutelary spirit) describes the trace of his love fading from the landscape, to be replaced by a "fresh association", as the countryside "grow[s] familiar to the stranger's child". This melancholic image of generational change governs the tone of Hollinghurst's book, which is concerned with the vagaries of memory and the construction of literary tradition. Its final section has an epigraph from Hollinghurst's contemporary, the poet and critic Mick Imlah, who died in 2009. From a poem entitled "In Memoriam Alfred Lord Tennyson", it reads, drily, "no one remembers you at all".

Hollinghurst's own commitment to the canon of English literature and the construction of literary memory has taken him from a lectureship at Oxford to a long spell on the staff of the Times Literary Supplement, and as the play of title and epigraph suggests, The Stranger's Child is nothing if not a book about books. Besides Tennyson, a partial list of the novel's most direct allusions would include the Waugh of Brideshead Revisited and the "Sword of Honour" trilogy, Ford Madox Ford's Parade's End, Forster (particularly Maurice and Howard's End) and Hollinghurst's acknowledged master, Henry James, particularly The Aspern Papers and What Maisie Knew. While this is a realist novel about England, written in an elegant, conservative prose, it is also a highly self-conscious performance about the construction of Englishness through literature and (to a lesser extent) music and art. The effect of all this nodding and winking is sometimes stifling, and the opening section contains passages that feel perilously close to Bloomsbury pastiche, as the young lovers (down from Kings, Forster's college) refer, inevitably, to their membership of the Apostles and drop the name of Lytton Strachey. As soon as the conversation turns to Rupert Brooke, and ominous mention is made of the coming "German war", the reader knows that the handsome, youthful Cecil is doomed.

Sure enough, in the second section, which takes place in 1926, Cecil lies entombed in marble in the family chapel at Corley, a Victorian gothic pile now under the stewardship of the poet's bitter, war-damaged brother Dudley. Relatives and friends have been gathered to be interviewed, mined for their reminiscences by the editor of a volume of the fallen hero's verse. Already, the immediacy of the writer's experience is being obscured under layers of cant, hypocrisy and deliberate evasion. The reality of the weekend visit to Two Acres (a secret tryst in the woods, a lifeless recitation of Tennyson) has been replaced by the faulty, partial memories of the participants. Lived experience has been shoved aside by the poem, whose celebration of a muted English pastoral is already, eight years after the Armistice, being harnessed to the ideological project of celebrating and mourning the dead, and (tellingly, in this year of the general strike) lamenting the collapse of a social system irrevocably transformed by wartime mobilisation.

Hollinghurst has a feel for the fragility of memory, and the brutality inherent in the modernist drive to "make it new". Victorianism, with its sentiment, clutter and decorum, has special importance in The Stranger's Child, which is committed to a kind of salvage, a recuperation of modes of feeling, chiefly the romantic friendships of upper-class men, that have only survived as traces in the margins and the marginalia of the English tradition. One of the guests at the Corley house party is a decorator, the unappealing but throughly modish Mrs Riley, who has been commissioned by Cecil's brother, Dudley, to "improve" the Victorian house, boxing in the gothic ceiling and creating antiseptic and functional spaces, like "rooms in some extremely expensive sanatorium". Throughout the book, an appreciation of the Victorian is a mark of sensitivity, of a receptiveness to the evanescent signals of the past. In the 1960s, a young bank clerk, who will later write a revelatory biography of Cecil Valance, has an affair with a schoolmaster, who has attended a "small rally" to save St Pancras station, addressed by the poet John Betjeman. In this and subsequent sections the reader has a sense of the novel as recessional, the summer weekend at Two Acres heading inexorably into the musty archival past. The obliteration of the landscape of Two Acres by encroaching suburbia and the transformation of Corley into a prep school are presented as part of the same process, by which the truth of Cecil Valance's life and art (which is, above all, a sexual truth, the unpublishable truth of homosexuality) is gradually subjugated, first by the misleading narrative of his relationship to Daphne, then by a blanket indifference.

As an accounting with class and history, Hollinghurst's novel will inevitably be compared to Kazuo Ishiguro's The Remains of the Day and Ian McEwan's Atonement. It is at its strongest when teasing out nuances of social behaviour: Paul Bryant, the shy bank clerk, is so concerned to behave appropriately with his employer's family that as he walks home after spending time in their company, "the small muscular contractions of pleasure and politeness remained almost unconsciously on his face". The fashionable decorator, Mrs Riley, makes Daphne uncomfortable by observing her "in her disappointed and reducing way".

As should be clear by now, The Stranger's Child is a profoundly nostalgic book, in the strict Greek sense of "homesickness": it longs to go home to the prelapsarian past, from whose sensuous immediacy (two lovers in a wood) we have been exiled into the rootless present. The modern world (and indeed the world of modernism) appears to have few positive qualities. We hear that the poem "Two Acres" "will be read for as long as there are readers with an ear for English music, and an eye for English things". The unspoken implication is that such an aesthetic appreciation is getting increasingly rare, and though these words are placed in the mouth of Cecil's editor, Sebastian Stokes, the reader feels that it is a position with which the author has sympathy.

Yet against this frank conservatism is Hollinghurst's contradictory impulse to reinscribe into history the suppressed narrative of gay friendship  and gay sex, directly and romantically presented  which he sees, rightly, as having played an important part in the construction of the English cultural tradition in which he stands. The romance between George Sawle and Cecil Valance, in the halcyon days before the first world war, is never properly acknowledged by the public, even in the novel's final sections, which take place in a literary London of queer theory, civil partnerships and book searching on abe.com. By this time, almost all material trace has vanished, and the inheritors of the two men  the "stranger's children", who are inventing their own gay lives  have no access to their tradition. Throughout his career as a novelist, one of Hollinghurst's preoccupations has been to puncture this ahistorical loneliness, to bring the homosexual tradition in English culture out of the shadows. Yet in this affecting, erudite novel, he transcends what might have been a purely backward-looking project, a filling in of the gay blanks. It is the signal achievement of The Stranger's Child to show that, despite the silence in which relationships like that of Cecil and George were shrouded, their influence has echoed on through the years, as an unconscious pattern for other friendships and love affairs. In the present day, when the immediacy of a young man reciting Tennyson has been replaced by a website with audio clips mouthed by an animated Tennyson avatar, this tradition persists, against the odds.

Hari Kunzru's new novel, Gods Without Men, is published in August by Hamish Hamilton

With his balance of surface glitter and steely precision, irony and deep seriousness, Alan Hollinghurst is usually seen as an heir to Henry James. But he must also have had, at some crucial formative moment, a passionate infatuation with Brideshead Revisited (a book that the narrator of his first novel describes as "deplorable"). His characters evince a recurring fixation with nice houses and their glamorous, sexy inhabitants: most notably, in the case of Nick Guest, the vaguely creepy interloper who moves into the home of a Tory MP in his Booker-winning masterpiece The Line of Beauty; but Waugh's theme and his pastoral imagery echo through all of Hollinghurst's work. Charles Ryder's words could apply to most of his protagonists: ". . . I was in search of love in those days, and I went full of curiosity and the faint, unrecognized apprehension that here, at last, I should find that low door in the wall, which others, I knew, had found before me, which opened on an enclosed and enchanted garden, which was somewhere, not overlooked by any window, in the heart of that grey city."

Of course Hollinghurst's enchanted garden is quite unlike any other seen in English literature: gay sex pastoral, it might be called, whether the unapologetically explicit action takes place in gated Notting Hill gardens, London clubs or the summery English countryside. His captivating new book  his first since The Line of Beauty seven years ago  is a country house novel that begins in a garden, in the late summer of 1913. In an inversion of the Brideshead theme, the outsider, the stranger's child, is an aristocrat visiting a middle-class home and seducing the family in it  the Sawles of Two Acres, a pleasant Victorian villa in Stanmore Hill, in the outer suburbs of London. (Later on, the Sawles invade his much grander home and repay the favour.)

He is Cecil Valance, a mediocre Georgian poet of broad sexual tastes, who, in the course of his short visit, drinks too much, stays up all night, worships the dawn, repeatedly ravishes the love-struck younger son of the house (his Cambridge friend George), roughly kisses the daughter Daphne by the rockery, and then writes a poem praising these "Two blessed acres of English ground". When Cecil dies during the war, the poem is extolled by Churchill, as Rupert Brooke's "The Soldier" was, and becomes famous as an evocation of a country on the brink of a great change: "A first-rate example of the second-rate poet who enters into common consciousness more deeply than many great masters," as one character puts it.

The rest of the novel consists of four more sections, set at intervals between 1926 and 2008, while most of the action  deaths, marriages, births  occurs offstage, in the gaps in between. In the second episode, Daphne has married Cecil's "mad brute" of a brother and is now the mistress of the Valance seat, Corley Court, "a violently Victorian" country house in Berkshire. At the behest of her forbidding mother-in-law, known as "the General", she hosts a weekend devoted to Cecil's memory. In the third, set in 1967, Corley Court has been turned into a prep school; Paul Bryant, a bookish young bank clerk in Foxleigh, the local town, meets Daphne, and has his first love affair, with Peter Rowe, a teacher at the school. In the fourth, we see Paul, now a literary biographer, interviewing the survivors from the first section for his biography of Cecil. The book ends with a coda set in 2008.

The story is a sort of ironic meditation on the evolution of literary memory. It shows how the poem and the original incident behind it are mythologised, and the myth is made official. Later comes the revisionist version: the characters discover over the years what the reader already knows, that the famous poem was probably written for a man rather than a woman, and that there are lost, unpublished sections which would have shocked the wider reading public: "The English idyll had its secret paragraphs, priapic figures in the trees and bushes . . ." The myths are partially corrected, but new myths replace some of the old ones, and new fashions unbalance the historical record just as the old ones did. When a friend asks Daphne what Paul wanted to interview her about, she says, with some justice: "Smut, essentially."

Hollinghurst has a strong, perhaps unassailable claim to be the best English novelist working today. He offers surely the best available example of novelistic ambition squared with the highest aesthetic standards. Where so many fiction writers seem stylish but austere, or full of life but messy, Hollinghurst has his cake and eats it. His novels cover high life and low life, culture and instinct, jokes and opera, with equal confidence. He can follow the consciousness of an individual in amazing detail, as well as subtly dramatising the wider social and historical currents: The Line of Beauty is one of the definitive novels about the 1980s, and his debut, The Swimming Pool Library, is a sort of fictional excavation of London's gay past. His best books are beautiful at the level of the sentence and impressive at the levels of character, incident and plot; they manage to be nearly perfect and great fun at the same time.

In many ways, The Stranger's Child has the same qualities as his previous novels. It is elegant, seductive and extremely enjoyable to read, and peppered with astute, apparently casual noticings. (Of a man stumbling around in a shed at a party: "He was drunk, it was one of the hilarious uncorrectable disasters of being drunk." Of a grand literary wife: "A hard, good-looking face, thoroughly made up, and a manner he knew at once, from its tight smiles and frowns, of getting people to do things.") It treads much of the same ground as its predecessors: class and money, buried histories of gay life in this country, the dreary provinces and the exciting metropolis, with forays into architecture and Victoriana. As ever, Hollinghurst's set-piece parties are stunning.

But he appears to have taken two vows of chastity. The first, which some readers may find shocking, is that he has radically cut down on the sex, which is mostly shielded by soft focus or euphemism ("a bit of Oxford style"); emotional rather than physical love dominates. The second is that he has limited the use of his gorgeous observational voice, which dominated his previous works. A lot of the narrative is carried by dialogue and relatively basic description. It also has a principal female character, for the first time, and the story is warmer and more forgiving than in the past.

It almost seems as if Hollinghurst is refuting the most commonly made criticisms of his work: that he's not very interested in women; that there's too much sex; that his writing is too lush; that his characters are not likeable. These objections, incidentally, seem to me largely philistine or dishonest (the old cultured pretence that sex is "boring" and beneath one's notice). And, flawlessly executed though this book is, it has rather less bite than its predecessors. The Stranger's Child is stately, even a touch tweedy, and not exactly original. Where his other novels seem to stand alone, this is a more recognisable creation, pastiching the classic styles of the past, and retooling them to reflect present-day concerns, as Ian McEwan did in Atonement and Sarah Waters has done throughout her career, to name only two of his contemporaries. At different points there are flashes of Forster, Woolf, Waugh, Lytton Strachey's letters, The Go-Between, The Aspern Papers, possibly Robert Graves, obviously Rupert Brooke  though Cecil is not exactly based on him  and doubtless many others for reference-spotters.

The first world war, Bloomsbury, the Edwardian gentry enjoying a last glorious summer  the terrain is familiar, as the book frequently acknowledges. But the main objection is that the pastiche partially obscures the voice. Even The Spell, his evocation of an early middle-aged man's infatuation with clubbing, ecstasy and younger men, which many see as slightly embarrassing, has more inspired and memorable passages. And the new book certainly falls somewhat short of Hollinghurst's best work  The Swimming Pool Library, The Folding Star and The Line of Beauty. Unlike them, it's merely very good: it doesn't leave you dazed, page after page, with the brilliance, wit and subtlety of its perceptions. Is this an ungrateful line of criticism? Probably: The Stranger's Child will no doubt be one of the best novels published this year.

 See interview with Alan Hollinghurst on Saturday 18 June., 18 June 2011.