In Lithuania, Viliumas Malinauskas knows just what to do with the old statues and decommissioned sculptures of the past 50 years.

He takes them to his sculpture garden and, there in Grutas Park, an attraction that goes by the unofficial title of Stalin World, paying visitors can glimpse Lenin, Marx, secret police chiefs and, naturally, Stalin himself lurking amongst the foliage.

In terms of what is normally understood as public art, Grutas Park is an anomaly. Mention the term and we think of Antony Gormley's Angel of the North outside Gateshead, of Maggi Hambling's Scallop on the Aldeburgh shore, of Marc Quinn's statue of Alison Lapper on the fourth plinth in Trafalgar Square.

Interest in public art is on the increase. Consider the amount of press coverage generated by Paul Day's 9-metre bronze of a couple embracing on the platform at the redeveloped St Pancras station in London, a sculpture of "superlative-defying vulgarity", according to the Guardian newspaper; or the warmth of feeling directed towards the 31 life-sized statues of Event Horizon, which Gormley placed on top of buildings along the Thames in 2007 as part of a temporary exhibition at the Hayward Gallery.

Models of the works on the six-strong shortlist to succeed Thomas Schütte's current fourth plinth creation go on display at the National Gallery on 8 January, with the mayor due to announce the selected artist later this year. It's interesting that most of the artists on the shortlist, including Tracey Emin, Anish Kapoor and Gormley, are household names.

"We have always had art in public spaces," says Declan McGonagle, the director of art and design at the University of Ulster, "but what has changed over the past 25 years comes from the decision of artists to get out and reconnect with lived experience. They are leaving the template of the white cube, of the museums and galleries, to re-enter the public domain."

It was with this in mind that Channel 4 launched its Big Art Project (BAP) in 2005. It is a scheme to commission and install works of public art in seven UK locations.

Its lead supporters, to the tune of £1m, are Arts Council England and the Art Fund. A further £1m has been given by a group of bodies that includes Creative Partnerships, Northern Way, and Arts and Business. Channel 4 will broadcast the results of the entire initiative this spring.

Peter Jenkinson, who developed the New Art Gallery Walsall, is one of four selection panellists for the BAP. He says it's important that the project doesn't impose art on a community. "No art is going to arrive on a lowloader in the middle of the night," he says, adding that it has to be the product of a genuine conversation between all the parties involved.

Following a call in 2005 for locations to nominate themselves as potential sites for new public artworks, more than 1,400 applications were received.

A long list of 12 sites was whittled down to seven (see box). Curators and artists have been introduced to the communities and their local advocates, who with the help of the Big Art Project Trust, are now looking for ways to finance their chosen projects.

Jenkinson says the project is evidence of a change in public attitude: "People really believe that art can change their lives. A Glaswegian woman wanted an art project that would deal with the heroin problems in her area; in north London a woman wanted the project to address gun crime; in Burnley the community wanted art to deal with racism."

All laudable aims, but are such transformations the role of art? Jenkinson says what art does or does not do is a complex area, but that at the very least it can ask questions.

So what then is public art? Statues of monarchs, generals and statesmen are, by and large, not public art so much as personifications of a system's political legitimacy and a method of its memorialisation.

Jenkinson prefers a wider definition. "Art can introduce a set of new ideas; it can inspire fresh ways of thinking about political processes and activities," he says.

Helen Whitehead, the public art coordinator at the Liverpool Biennial, agrees: "We work with the best contemporary artists in the world, and we are interested in art which questions its environment and switches people's thinking."

She says a work by Richard Wilson in Liverpool is a good example. Turning the Place Over is an eight-metre diameter disc mounted on the facade of Cross Keys House, a central building scheduled for demolition as part of Liverpool's regeneration.

The disc holds a chunk of the facade itself and, as it revolves, the interior of the 1960s building is exposed. It's a work in balance with its site and surroundings - and its eventual demise. When Cross Keys House is demolished, Wilson's sculpture will also end.

Yet even as a term, public art is problematic. Sandy Nairne, the director of the National Portrait Gallery in London, says: "I tend to refer to art in public places, rather than public art."

As the chairman of the commissioning group that advises the Mayor of London's office on the contents of the fourth plinth, Nairne is closely involved with art and its environment and he warns that there is no such thing as a neutral space.

"Even though museums and galleries offer a pretence of neutrality, you are seeing art in a space entirely designed for it. A soon as you go outside, there are historical and geographical contexts of all kinds. Speaking generally, no piece of art in public will be successful if it has no consideration of these contexts."

How loaded a site's significance can be is illustrated in areas of historical conflict. It was in a former incarnation as the first director of the Orchard Gallery in Belfast that, in 1987, Declan McGonagle commissioned Antony Gormley to create a work for the walls of the City of Derry. Gormley came up with three cruciform sculptures that proved hugely contentious.

McGonagle was approached by "unofficial representatives" of both loyalist and republican communities concerned at what the temporary sculpture's intention might be. In the end locals responded so well to Gormley's Sculpture for Derry Walls that the work was reinstalled four years ago.

A similar thing happened with Gormley's Another Place, an installation in 2006 of 100 cast-iron figures along a two-mile stretch of Crosby Beach, near Liverpool. Sefton Council was successfully petitioned to allow the work to remain.

Gormley's figures, not so far from the sands where 23 Chinese cocklepickers drowned in 2004, are imbued with a tremendous emotive force. The work has what McGonagle calls "cultural power". It is art in a social context, owned and accessible to all.

Public consultation can be awkward but sometimes it is vital. McGonagle cites the example of Trillian, the 45-metre high flower proposed by artist Ed Carpenter due to be installed on a roundabout - close to the Falls and Shankill Roads - later this year at a price of £400,000.

"There was no community involvement," McGonagle says. "I believe the work was driven by anxiety and insecurity… I guarantee you that, within days of it being erected, parts of it will be painted red, white and blue and other parts green, orange and white."

Hopefully, a better reception awaits the work that Vong Phaophonit will create for Belfast's Waterworks Park as part of the BAP. McGonagle is curating the commission and he speaks enthusiastically of the art - a cross between a platform and a beacon - being planned.

Like all the works in the project, Vong's has been shaped by a solid community involvement. And if the meaning of the work can transcend the piece itself, it will be work well done.

Louise Gray is a freelance arts writer and editor

Big Art Project: the seven sites

Burnley

Art collective Greyworld is part of an initiative to help bring together children from the Lancashire town's different ethnic backgrounds.

Cardigan

A group of local residents are keen to promote eco-tourism and want a work of art to be at the centre of a new public space on Prince Charles Quay. Mexican-Canadian multimedia artist Rafael Lozano-Hemmer has been selected by the Welsh community.

Isle of Mull

The people on this geographically dispersed island in Scotland want Danish artist Jeppe Hein to develop something that will unite them.

Newham the highest point in Newham has been chosen as the site for an artwork that could bring together the communities in this segregated east London borough.

North Belfast

Supporters want public art to help transform Waterworks Park, the only green space in this deprived area. Laos-born artist Vong Phaophonit was chosen from a clutch of artists that included Nathan Coley, shortlisted for the 2007 Turner Prize.

Sheffield

A scheme to find a use for two disused cooling towers at Meadowhall. These iconic structures have been earmarked for demolition by Eon Energy.

St Helens an idea led by an ex-miner to bear witness to this once vibrant colliery community on a vast open area at the apex of the pit head. Spanish sculptor Jaume Plensa is developing the new artwork.