Billy Budd, Opera North

"That cursed mist" may hide the French from the crew of the HMS Indomitable and cause far more deadly damage to moral certainty. But clarity and strength are the assets of Orpha Phelan's new production for Opera North: no gimmicks, superb company work and three principals for the battle of good and evil all equal to their dramatic challenges at a level I haven't seen for decades.

Britten and his co-librettists EM Forster and Eric Crozier pose some challenges in their adaptation of Melville's story, all well handled here: there's a bit too much moralising, especially about avenging angels and the idea that a stammer is a flaw in the divine scheme (well, it does prove fatal, but no-one's to know that in Act One), while the first half - which started out as two separate acts - takes a long time just drawing up the psychological lines of battle. But the screw turns inexorably once beauty-envious Master-at-Arms John Claggart, his "sexuality gone soggy" as Forster put it, accuses press-ganged foundling Billy, goodness personified, of insubordination. That's when upright Captain Vere falls into confusion, and the needle of the moral compass goes spinning.

The opera frames the action with the tortured memories of old Vere, wandering a crumbling mansion of the mind. Its grey walls remain a framework for the action on the ship: no masts and sails here, only hammocks, but Leslie Travers' spiral of splintering planks delineates above and below decks with startling simplicity, his costumes colour-scheme in greys, whites and blues with significant splashes of red, and Thomas C Hase's superb lighting, especially fine on giant shadows, does the rest. There are no surprises other than the famous interlude of major and minor triads - Opera North first trumpet infallibly secure in high-lying notes - when Vere goes to talk to the condemned Budd; usually it's left to the imagination, and the possibility of the "love that dare not speak its name", whereas here the captain goes to sit quietly alongside the able seaman, backs to the audience.

Phelan, significantly, is the only woman in the company other than movement director Lynne Hockney and some of the orchestral players; she should give us an interesting Don Giovanni where male directors have made too much of the running. She doesn't need to do much other than block effectively and depend on the interaction of fine singing actors.

Each gets his moment in the sun or the dark, even if all three strain on a top note or two - a very small reservation, as they mostly make the problem work for them dramatically. Alastair Miles (pictured above, right, with Alan Oke's Captain Vere), a true world-class bass of the colour the villain needs, has Claggart break out of his stiff public persona to terrifying effect in his monologue of hatred and envy, twisting Billy's red neckerchief in his hands and making a curse over it; for the first time, Garry Walker's razor-sharp Opera North players let rip, too. Goosebumps all round. Alan Oke is perfect of diction and demeanour, too, starting out as a wry, cultured observer of human nature, precise but never prissy, whose breakdown is shocking, both in his climactic soliloquy and in the slow crumpling of his face and body as he conducts Billy's court martial.

Roderick Williams' innocent who lashes out - not sure (spoiler) why the audience laughed when Claggart is pronounced dead - really is goodness personified, perhaps without the homoerotic element which Phelan downplays. His reactions to everything are strong and true - like Phyllida Lloyd's Opera North Gloriana, this production would be a superb candidate for the close-ups of a film - and his supreme Lieder-singer's subtlety gives us the most cultured and moving "Billy in the Darbies" I've seen or heard (Williams pictured right). It's the first time, other than the Prologue, when a single figure is alone on stage; sailors are symmetrically present forming a cordon around Captain Vere's cabin, Phelan reminding us of the balances in Britten's careful structure.

Otherwise there are plenty of standouts among the many other grateful roles. Baritone Gavan Ring as the tender friend of the lashed Novice is surely a Billy-in-waiting. Special character comes from Adrian Clarke's Flint, Daniel Norman's Red Whiskers and David Llewellyn's Squeak. Stephen Richardson's Dansker and Oliver Johnston's Novice could yet fine-tune their sympathy, but both are moving.

The final word goes to Vere, whose musical liberation if not the words that go with it makes complete sense in Walker's postponement of the biggest climax to the last well-timed shattering chord. But the male chorus, presumably Opera North's plus extra voices, leaves its mark, too - hard-working, fearless and spine-tingling. This is their moment indeed, as Suor Angelica was for the women; together they will make a huge impact in The Snow Maiden and Turandot, still to come in an Opera North season of vision. The current management of English National Opera, further depriving its own chorus of any significant participation this season by having allegedly just denied them a role in Carousel, should look north to a peerless example of a valued company and hang its head in shame.

• Billy Budd in Leeds and then touring until 2 December
• Read more Britten reviews on theartsdesk