LONDON (Reuters Life!) - British fashion designers including Dame Vivienne Westwood and William Tempest have transformed Princess Diana's former home into an "Enchanted Palace."

The Kensington Palace exhibition, which will run for two years, explores the lives of seven princesses who lived at the estate -- combining storytelling through live theater, haunting whispers and lighting tricks.

In addition to Westwood and Tempest, designers Boudicca and Aminaka Wilmont, illustrator Echo Morgan and milliner Stephen Jones were commissioned to revamp more than a dozen rooms in the 405-year-old state apartments, while 12 million pounds ($18 million) of major works are carried out in other areas of the royal estate.

Curators asked the designers to conceive a new dress for each princess, including Mary, Anne, Caroline, Charlotte and Victoria, while another two original dresses belonging to Margaret and Diana, Princess of Wales are displayed in a new light.

Westwood created a dress "for a rebellious princess," inspired by the King George IV's daughter Princess Charlotte, whose death in 1817 had such an impact on Londoners that supplies of black cloth in the city ran out.

Another highlight is Tempest's avant-garde piece in Queen Victoria's bedroom, involving 2,000 suspended origami birds. It was in that room that she awoke in 1836 to discover she would assume the role of Queen.

Each room has its own theme, including tragic stories of a young princess betrothed to a man much older; the horror of bearing a stillborn child and that of losing a friend forever which are brought to life by actors from Cornish-based theater company WildWorks.

"It's such rich material for art and theater -- to be exploring these stories in the rooms where they took place is thrilling," WildWorks producer Bill Mitchell said.

Visitors are handed maps to help them work their way around the warren-like installation, and asked to undertake a challenge to identify the mysterious room of each princess.

In one room, haunting words are scrawled across display cabinets created to appear as children's writing.

"I have grown up all alone," one reads, while another says: "when I look back on those years which ought to have been the happiest in my life I cannot help pitying myself."

One of the designers, Morgan, who created the magical "cupboard of curiosities," told Reuters the "curators wanted to break the rules; they want to encourage people to walk in to a palace and start singing."

Royal Palaces curator Alexandra Kim said the exhibition was "a truly unique opportunity to discover the hidden stories of the palace."

Improvements to the grounds, which start in June, will include better visitor facilities, new gardens, exhibitions and improved access.

The upgrade is due for completion by 2012, in time for the Queen's 60th Jubilee and the London Olympic Games.

The Enchanted Palace, now opens to the public, will run until 2012.