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Imagine a dowdy former 1960s cinema transformed into Britain's most spectacular theatre. Picture a gigantic Roman-style setting for operatic events of spectacular proportions, flanked by lions, angels and chariots and framed by a vast proscenium arch. Think of alabaster and marble, gold and purple, drapes and awnings, statues and friezes. Cover one side with a giant glass roof and top it off with an enormous rotating ball on a spike. Then remember the building you first thought of, and expand the area for spectators by nearly half. Sounds ludicrously improbable, doesn't it?

This is precisely what has taken place at the Coliseum in Covent Garden. The home of the English National Opera, which was halfheartedly recast as a cinema in the 1960s, has not so much been converted for a second time as restored to its original splendour at a cost of £41m. At its heart was – and is once again – a truly awesome and sumptuously ornamental auditorium. Around the auditorium, a six-storey labyrinth of public foyers, bars, stairs and toilets has been expanded no less than 40% in floorspace, with a large modern daylight-filled conservatory capping it all.

To achieve all this in a hemmed-in city-centre site, the project team, including architect RHWL and construction manager Gardiner & Theobald, had to summon up ingenious solutions that have set new standards for theatre refurbishment. After four years of construction, most of it carried out while operas were being performed, the Coliseum will reopen, fully refurbished, a week on Saturday.

"Spectacle" is one word that sums up the Coliseum. It was built in 1904, and it still has London's largest theatre auditorium, seating 2364. It was designed by Britain's most prolific theatre architect of all time, Frank Matcham, who in this case abandoned his swirling neo-baroque decor. Instead, his client, the impresario Sir Oswald Stoll, latched on to the pomp and circumstance of ancient Rome as the dominant theme. He envisaged the Coliseum as a variety theatre for popular entertainment, and it really did stage spectacles on the scale approaching its Roman namesake, with horses and elephants cavorting around a giant revolving stage. Matcham responded to Stoll's vision by laying on a flamboyant showcase of repro Roman classicism, with the auditorium brimming over with statues, friezes and ornamentation in rich materials.

By the 1960s, however, imperial Roman classicism had become an embarrassment to cinema audiences, and much of the auditorium was overpainted in dark blue and wan greens like a downmarket nightclub, and a utilitarian fire screen was dropped in front of the stage. Although the theatre was adopted by the English National Opera in 1968, this awkward mish-mash of faded Edwardian and swinging sixties was left unchanged.

Four decades later, Matcham's imperial spectacle has at last been reinstated to eye-popping effect.

The stage is framed by a monumental arch in richly veined, plum-coloured alabaster. On either side, elaborate sculptural assemblies of victorious angels, chariots drawn by golden lions and busts of Roman emperors burst forth in opulent marbles, cream-painted fibrous plaster and gold paint. The stage is screened by a draped mohair curtain in the ripest, most decadent dark imperial purple, with an imperial eagle embroidered in gold at its Crest. And overhead, a shallow dome has been recreated that continues the elaborate imperial style, with plasterwork decorated to resemble an assembly of white awnings over an open amphitheatre and with a cupola of ornately patterned glass at its centre.

Although grandiose Roman decor is hardly the height of fashion in the early 21st century, there is a satisfyingly neat fit between the popular Edwardian variety theatre and its latter-day role as a national opera house. The original expansive auditorium and stage can cope perfectly well with grand operatic performances, while the lavish imperial decor adds a suitably romantic setting.

This match of original and new uses, combined with Matcham's special architectural skills, has meant that almost no reconfiguration was required to the auditorium.

The one practical improvement was to introduce air-conditioning – viewers in the gods regularly fainted as the upper gallery transformed into a steam bath. Even here, the solution was to adapt the existing high-level ventilation system instead of applying the modern convention of supplying conditioned air below the seats. In the existing system, installed in 1932, used air was exhausted through grilles around the base of the dome. Seventy years on, a system designed by services engineer Arup reverses the air-flow, with cooled air fed into the auditorium through barely perceptible nozzles that replace the existing grilles.

Outside the auditorium, a large conservatory makes the most eye-catching modern addition to the building. Set back behind a parapet, it reinstates in contemporary style Matcham's original wintergarden, demolished in the 1960s. It encloses a double-height foyer and bar, and its airy ambience, open to the sky and enlivened by views of the elaborate tower overhead, is a relief from the relatively cramped, artificially lit interiors of the rest of the building.

As well as the conservatory, a rich array of new or extended public spaces and facilities have been created to appeal to modern audiences. This was much easier said than done, as the building is hemmed in on all sides, so the team could not simply add an extension. Instead, they resorted to grappling with a baffling 3D jigsaw across six floors. The aim was to liberate a variety of underused spaces scattered around the building.

Six existing lightwells were filled in, staff offices converted, escape stairs and broom cupboards reclaimed and minor extensions built on the roof.

One result of this front-of-house reconfiguration is that audiences can now reach the upper gallery and balcony through the fully restored and expanded main entrance hall and foyers, rather than creep up as before like poor relations through separate side entrances and stairs.

Externally, the lurid fibreglass ball at the pinnacle of the tower – another relic of the 1960s cinema conversion – has been replaced with a rotating open globe of steel straps as in Matcham's original design. On the main facade, paint has been stripped from the terracotta tiles, and these have been repaired and, where badly cracked, replaced.

Architect RHWL has adopted the familiar two-handed approach to refurbishment. As David Wright puts it: "Wherever Matcham had been, we have replaced in his style. Where Matcham had not been, we have designed in a new but sympathetic style." There's no denying the honesty and attractions of this approach, as the new insertions have a cool, glamourous late 20th-century style with plenty of chunky natural timber fittings and recessed ceiling lights. Even so, how sympathetic these are to Matcham's uninhibitedly florid style in marble, plaster and gilt is open to question.

That said, even modern audiences occasionally like a spectacle in real life rather on a cinema screen, and the refurbished Coliseum provides a spectacle of unrivalled ostentation. On top of that, the abundance of foyers, bars, stairs and even toilets at last serves their desires and needs in comfort in the intervals too.