Guillermo del Toro of Mexico, director of the film "Pan's Labyrinth", poses at the film's premiere in Hollywood, California, in this December 18, 2006 file photo. [Reuters/Fred Prouser]

LOS ANGELES  - It has murder, mutilation, warring armies and a demon who eats humans. And oh, it's a fairy tale, too.

Fantasy movie "Pan's Labyrinth," billed as an "adult fairy tale," expands its U.S. run on Friday as one of 2006's best reviewed movies and a foreign language Oscar hopeful.

Garnering positive critical reviews, it has been playing in four major U.S. cities including New York and Los Angeles, and this week moves to an additional 10 including Boston and Seattle then expands to dozens more on Jan. 19.

The film, written and directed by Mexico's Guillermo del Toro, tells of a young girl who learns about good and evil from a faun in the Spanish forest. But if that sounds like a story in a family-friendly Disney flick, it's not.

The tale takes place in 1944, just a few years after the Spanish Civil War when the Nazis helped fascist Gen. Francisco Franco win. Franco, now ruling his country with an iron fist, orders his army to destroy what remains of the resistance.

"To me, fantasy is a spiritual occurrence, and for spirituality to be needed by people, you have to have a base, vile, physical existence," del Toro told Reuters. "In order for fantasy to flourish, brutality must exist."

He said that "Pan's Labyrinth" follows an ancient tradition in which fairy tales with blood, gore and cruel twists of fate were used to teach morals to adults.

Del Toro called fascism, which flourished in Europe before World War Two, the "ultimate horror" because its dictatorial system of government made uniformity the standard, and it "destroys individuality, imagination and a sense of self."

In "Pan's Labyrinth," the young heroine, named Ofelia, epitomizes imagination and individuality, and she is looking for a sense of who she is and where she fits into the world.

COOL KID, CRUEL WORLD

The movie opens with Ofelia being taken by her mother and evil stepfather, Captain Vidal of Franco's army, to an old mill in rural Spain where she uncovers a labyrinth of twisted hedges leading to an underground kingdom guarded by a strange faun.

The faun tells Ofelia she is no mere mortal, but rather the princess of a subterranean realm who long ago ascended to the real world. To reclaim her rightful place on the throne, Ofelia must complete three harrowing tasks.

Above ground, Ofelia confronts atrocities committed by Captain Vidal, and from her experiences, she learns about good and evil.

"She is in a state of grace, and that is not something you achieve through a church or army. That is something that allows you to be who you are. Most children have that by nature, and it gets tainted by institutions," Del Toro said.

Del Toro, whose work has ranged from low-budget, critical hits like "The Devil's Backbone" to big-budget Hollywood flicks such as "Hellboy," has become a master of horror films and special effects. "Pan's Labyrinth" mixes beautifully imagined makeup, costumes and set design of the faun's underground kingdom with accurate depictions of real world action.

In the past two weeks in limited release, U.S. audiences have responded by giving the film some of the highest average revenue per screen at box offices, and critics have chimed in too. The film scores a 99 percent positive rating on Web site rottentomatoes.com, which aggregates film reviews.

The movie is Mexico's entry for Oscar consideration, and most Academy Award watchers believe it has a strong chance at the film industry's top U.S. honor for a foreign language film given by the Academy of Motion Picture Arts and Sciences.

As important for del Toro, it has been embraced in Spain and in Mexico. "It makes me feel fantastic," he said. "It's frankly a point of pride, and a high point of my life."