A shade after sunrise on a bright May morning a year ago, heritage-watchers around the globe awoke to terrible news. BBC Radio London was first to break the story that the Cutty Sark, perhaps the world's (and certainly Britain's) most iconic ship, was on fire.

Within minutes, images of orange flames ripping through the 139-year-old clipper in its Greenwich berth were being streamed live by everyone from Sky News to CNN. Breathless reporters spoke of the destruction of the finest surviving specimen of the great age of sail.

The blame was almost immediately levelled at arsonists, with talk of a mysterious silver car spotted by a security guard, and furtive figures glimpsed by unnamed eyewitnesses.

Even 24 hours later, when the inferno had finally been doused by the efforts of 40 firefighters, the prognosis remained terminal. The Daily Telegraph lamented the day "140 years of history went up in flames", while the Times declared it "destroyed".

But after a collective gritting of teeth, numerous industrial-strength coffees, and a day-long recce of the scorched site, those most closely involved in conserving the grade-I landmark emerged to declare the ship salvageable.

Thanks to an accident of timing, many of its most prominent features - masts and cabins - had been removed prior to the 21 May blaze, as part of the £25m project already underway to restore the ship. Its gangplanks, anchors and rigging were safely in storage. And, despite initial impressions that much of what was left on site had been destroyed, less than 2 per cent actually had.

Not that the waves of relief felt by staff at the Cutty Sark Trust, the charity that owns the ship, could diminish the horror they had experienced on learning of her plight that morning. Stephen Archer, the trust's communications director, recalls: "My wife woke me saying, 'Look at the TV.' It brought a tear to my eye. My immediate reaction was: 'We've lost her.'"

Twelve months on, the picture couldn't be more different. The Cutty Sark still looks like a bombsite, but then, shrouded by scaffolding and a giant tarpaulin, it bore scant resemblance to her familiar picture-postcard image even before the fire.

After a four-month clean-up (delayed by a lengthy police forensic investigation, the outcome of which is finally promised within weeks), conservation work is once again gathering pace.

Rusted ironwork at the ship's stern - the result of decades of salt corrosion, rather than fire damage - is being blasted with Australian garnet (razor-sharp sand used for heavy-duty cleaning) before being whitewashed to replicate its original lead finish. The iron will also undergo electrolysis to drive out chloride ions that accelerate corrosion.

Meanwhile, the last of the 500-plus deck planks are being removed to a workshop this month to be consolidated with reclaimed teak from India and have their cracks filled with epoxy adhesive. To lighten the ship's superstructure (making it sturdier in future), its "loading" will be reduced by three-quarters.

This entails hauling out chunks of masonry piled into the stern in the Dumbarton shipyard where the Cutty Sark was built in 1869. Hefty items, such as the masts and deckhouses, await conservation at Chatham Historic Dockyard.

The ship in the bubble

But in light of last May's events, what shape will the new-look Cutty Sark eventually take - and how far, in reality, has the project been blown off course?

Taking the negatives first, the fire has put back the scheme's completion (originally scheduled for 2009) to 2010 at the earliest. The delay will increase labour costs, while losing the trust income from ticket and souvenir sales it would have earned had it reopened on time. As a result, the final bill is expected to rise by more than a third - from £25m to £35m.

Now for the upside: in January this year, despite wrestling with a dramatically reduced budget thanks to the government's diversion of funds to the 2012 Olympics, the Heritage Lottery Fund (HLF) took the rare step of awarding a £10m top-up to the initial £13m it granted the trust in 2006.

While a £4m shortfall remains, Archer is talking to several major companies about potential sponsorship deals. "The fact we have this endorsement from HLF makes it much more likely that companies considering supporting us will come aboard," he says.

The HLF's generosity means the trust has had to make few changes to its original proposal. When the Cutty Sark reopens for business in two years' time, its 900-tonne hull will have been raised 10 feet in the air, mounted in a steel cradle, and encased in a glass canopy encapsulating 92 sq metres of ground beneath.

The 'bubble' design has been devised by two practices, YouMeHeShe and Grimshaw, the architect behind Cornwall's Eden Project.

Interpretation-wise, the weary displays of yesteryear will be replaced by hi-tech interactives, including a rotating globe suspended beneath the ship, tracing its voyages as first a tea clipper then a stalwart of the Australian wool trade. On board, visitors will be greeted by ghostly crew members (projections of costumed actors) engaged in day-to-day maritime tasks.

Other developments are afoot, too. The reborn Cutty Sark will moonlight as a corporate entertainment venue to rival the British Museum. A marketing drive dubbed "Cutty Sark at Night" will see the area under the ship hired out for everything from bespoke tea parties to wedding banquets for up to 340 guests a time.

Promoters will be able to beam their logos onto the vessel. And its masts will be illuminated by Patrick Woodroffe, designer of the spectacular pyrotechnics seen at stadium concerts by the Rolling Stones and the Police.

Not everyone is impressed by this though. Simon Temple Waite, who managed the ship for the trust from 1989 to 2002, says of the plans: "I have reservations from the point of view that the ship is a Merchant Navy memorial. Would one do this at the cenotaph?"

But Richard Doughty, the trust's chief executive, says it has to employ the strategies of 21st-century business to maintain its position in a tough market. "I'm sitting against major subsidised national museums, running a small charity," he states. "I need to make enough to conserve the ship."

The boldness of the restoration project itself has also attracted concern. Martyn Heighton, chairman of National Historic Ships, a maritime conservation quango that was formally consulted on the plans, says: "We understood where the trust is coming from - it could be very impressive having the Cutty Sark in the air - but we had concerns about that. We were nervous about how it would be possible to look after the ship properly up there."

But Doughty argues that lifting the ship will make future conservation easier: "Raising Cutty Sark is all about giving the ship proper support to keep her shape. By inserting a new internal structure, we relieve the original fabric of loads; we can have the masts resting on the keel again, not going straight through her bottom, and at the same time we are putting the ship back together for ease of maintenance. The space released underneath the ship will allow people to appreciate her lines better than ever before."

Lead architect Simon Beames adds that the steel armature holding the ship will rest on a support lodged in the new 'tween deck (one area that's being entirely replaced, after the 1920s "original" was destroyed in the fire). This will stop the ship "folding in on itself".

Mention of the 'tween deck raises the other question hanging over this project: that of authenticity. The trust holds that about 90 per cent of what remains of the Cutty Sark is "original" (by which it means that it hails from the ship's pre-1922 working life).

But some dispute this. John Sankey, whose grandfather was the longest-surviving member of the clipper's original crew, argues: "Almost everything you saw above the cabin tops [before the fire] had never tasted salt water. All the wood masting, yards, ropes, etc, date from the 1950s. Now most of the hull and interior decking will be fake as well."

Early-warning canaries

Others have wider issues with the definition of originality. Alastair McCapra, the chief executive of the Institute of Conservation, says: "There are philosophical questions about what you are preserving, and why. During a ship's life, lots of bits will be replaced. Someone once said of HMS Victory that it is the proverbial axe that has had six handles and three heads."

Arguments aside, the trust has impressed conservators with its innovation. Technical manager Ian Bell is borrowing the new "early warning system" he'll install into its framework from developments in military technology.

"We're building into the ship tiny 'canaries' - objects that mimic the composition of real components - along with ones that look like components, called 'parrots'," he explains. "When they start corroding, we'll know to intervene to safeguard the ship."

The trust is also training a 50-strong workforce of artisans skilled in otherwise moribund maritime conservation techniques. When not working on the Cutty Sark, they are contracted out to other projects - boosting revenue for the ship.

Bell has worked as a consultant on TV and film projects ranging from the Hollywood movie Cutthroat Island to an episode of London's Burning in which, ironically, a protestor plunged from the Cutty Sark's rigging. The team has a lucrative £500,000-a-year regular gig on HMS Warrior.

So what is the trust's final response to naysayers who would pour cold water over its scheme? Archer comes out all guns blazing: "Where else can you see a 900-tonne clipper, never mind walk under it? This is a view only ever enjoyed by whales - until 2010."

James Morrison is a freelance journalist
Cutty Sark timeline

1869

A 900-tonne tea clipper is built in Dumbarton for John 'Jock' Willis. The 85-metre-long ship, designed by Hercules Linton of local shipbuilders Scott & Linton, is named Cutty Sark, after a revealing shift worn by a witch in the Robert Burns poem Tam O'Shanter.

1872

Despite leading rival clipper the Thermopylae by 400 miles en route from Shanghai to London with the first of the new season's tea, the Cutty Sark loses its rudder. After makeshift repairs, it arrives home seven days behind.

1884

Switching from tea to the Australian wool trade, the Cutty Sark sails 9,000 nautical miles from New South Wales to Kent in 83 days - faster than any other ship that year.

1895

The Cutty Sark is sold to Portuguese firm J Ferreira & Co for £2,100. Renamed the Ferreira, it becomes a general cargo ship travelling between the Americas and Africa.

1922

Retired British sailor Wilfred Dowman buys the Cutty Sark from another Portuguese company (which has renamed it Maria do Amparo) for £3,750, saving it from the scrap-yard to become a Royal Navy training vessel under its original name.

1951

The Cutty Sark is restored to its original appearance for the Festival of Britain and acquired by the newly formed Cutty Sark Society (a forerunner of today's trust).

1954

The ship is towed into a specially built dry dock in Greenwich.

1957

After a three-year restoration, it is officially opened to the public by the Queen in a live BBC broadcast.