Light fantastic: How do you transform a dark mews house into astunning home and work space?

Given that she has never enjoyed working from home, it seems odd that the architect Alison McLellan chose to build her house above her office space in Hackney, east London. But there's more to the compact three-storey building than meets the eye. To avoid mixing business with pleasure, she has created two very different spaces within the house, which sits at one end of a narrow mews. Each morning she steps out on to her terrace and descends an exterior staircase, reaching her desk with perhaps the shortest commute in the city.

"Downstairs is a quite industrial space," says McLellan, explaining how she can comfortably switch between her work and living areas. "Upstairs we have created something quite refined." This attention to detail is evident in the carefully chosen pieces of Scandinavian furniture throughout the house: the wooden kitchen chairs are by Arne Jacobsen and a leather sofa, in a burnished tan colour by the German designer Walter Knoll, takes centre stage in the living room, flanked by two Poul Kjaerholm metal-framed chairs in the same leather. A careworn Alvar Aalto table, which has decorated McLellan's different homes over many years, holds a number of Aalto's Flower vases, filled with fresh-cut stems. "I always come back to Scandinavian designs," she says, "because they're very functional but very beautiful. They're like pencil sketches, the most minimal that they can possibly be; any more and they would be spoilt." Upstairs in the bedroom, Arne Jacobsen Swan chairs are upholstered in a soft lilac, one of the few traces of girliness within the fairly strict palette of dark red, grey and neutral tones that runs through the house. McLellan admits they have lost their shine a little since McDonald's started using them in its restaurants.

This attention to interiors is a staple ingredient in McLellan's work as an architect. Rather than stepping back once the bricks and mortar are in place, she envisages an entire project, so that inside and outside complement one another. So committed is she to this, that the front façade of her building is in three blocks of colour – the same red, grey and white chosen for the interior. The deep red of the sustainable teak laid on the kitchen floor is picked up again on the staircase.

"The way I have always approached architecture is that I've wanted to do the furniture and the interiors," she explains. With a background working in galleries and museums, including Tate Liverpool and Manchester's Lowry Centre, and current projects in Abu Dhabi, which is repositioning itself as the cultural capital of the Middle East, McLellan takes a creative rather than solely functional view of architectural design. "I think you have to finish the job," she says.

This job, as far as builds go, was finished remarkably swiftly. McLellan planned the project meticulously with Alistair Cook, a colleague in her architectural design practice. The plot was bought for £250,000 in late 2004 and work began the following summer, after the various pieces of planning permission had been secured. The original one-storey artist's studio was demolished to make way for the new project, and she credits Hackney Council with being "more liberal than some" when it comes to innovative architectural design. "The majority of contemporary one-off houses are in the Hackney area. They have let a lot of different architects build here and people love going to the Open House weekends, which I would like to take part in at some point."

McLellan and Cook finished the build in just 10 months, despite having to find and hire each craftsman individually. The elegant, warm and very practical home always looked a great proposition on paper, but the potential for missed targets and soaring costs was such that Channel4 caught wind of the opportunity to make some great television on site, and approached her about appearing on Grand Designs. But McLellan resisted the lure of Kevin McCloud. "Building it ourselves with no contractor and having Grand Designs watching us would have been a living hell," she says.

Her main priority, because the house was so compact and also close to blocks of flats, was to create light and the illusion of space. "The nature of a mews is that you don't have these marvellous views out," she explains. "So you're trying to create something quite internal but still have interesting views. Importantly, you want to create light without losing your privacy."

On this count, the home is a tremendous success. The living room is almost a glass box – there is a shaft of glass in the ceiling (the three floors of the house are graduated), a long window running across the back wall, and one entire wall, the entrance, is glass too, opening out on to the main terrace. "We wanted to come up here and have a point of arrival – to know you're at the house."

Chopping away a good quarter of a living room would be heresy to an estate agent, but this is exactly what McLellan did in order to create a terrace she thinks of as part of the living space. The plan is to grow a fairly wild-looking, overgrown green area round the terrace and, in time, the wisteria, Virginia creeper and evergreen hydrangea will cloak the surrounding walls, forming a leafy cocoon round the slate terrace with its metal table and chairs. Upstairs there is another terrace leading out from the bedroom. Together the outdoor spaces work to surround and extend the building and create the feeling of more space.

In spite of the unusual window-to-wall ratio, the house is energy efficient as most windows are south-facing and the walls retain heat thanks to the hard-working Sto insulation. "It is a very simple, well-insulated box," says McLellan. "The studio downstairs has very few windows and solid walls, and we used simple construction methods so that it was easy to build." The style of the house is a testament to McLellan's enthusiasm for Modernist architecture, a passion that was indulged on a recent commission to transform the communal areas of the two Highpoint buildings in north London, built in the Thirties by Berthold Lubetkin. "But I like something to warm it up a bit," she says. "I don't want it to be overly precious."

There is little chance of that, as she shares the house with Scribble, a pampered 10-month-old fox terrier who has a kitchen door to scratch on and an Eileen Gray rug down in the office area on which to wipe his muddy paws. One of Alvar Aalto's memorable quotes was: "Don't forget playfulness". He would no doubt approve of its role here. formartarchitects.co.uk; 020-7275 8585