A MAN called Skint has painted a surreal purple and pink flower beside a hole he has punched in a wall. A neurotic-looking spaceman has been sprayed in dark blue on another wall. We are in Edinburgh's grand, neo-Gothic Scottish National Portrait Gallery, which closed its doors in April for major refurbishment, and graffiti is appearing everywhere. Are Van Dyck, Gainsborough, Rodin, Raeburn and Nasmyth spinning in their mausoleums as the likes of DUFI, Machism, Elph, Paco and Skint take up residence for Rough Cut Nation - a new collaborative, multimedia installation that will exploit the gallery's evocative empty space?

A dozen of Scotland's most energetic graffiti artists and young urban artists are currently occupying the capital's iconic gallery armed with an arsenal of spray cans, dozens of pots of paint and an assortment of marker pens. They are clutching saws and hammers to chop down partitions and dividing walls, and they have already started tearing up the carpet.

Vandalism? Or a smart move to create a show that will lure people who would not normally be seen dead in an art gallery?

"Let's create chaos," says the 29-year-old Edinburgh-based artist Skint gleefully, as the group of nine men and three women gathers round a huge table in the ground-floor space. They're going to give the gallery the sort of street cred that the street artist Banksy recently bestowed upon Bristol City Museum with his surprise summer exhibition.

But Richie Cumming, the 29-year-old curator of Rough Cut Nation, wants to set the record straight. "We're not doing a Banksy," he says firmly, pointing out that the groundwork was laid for the Scottish exhibition almost two years ago.

It could be argued that the Portrait Gallery has surrendered itself to a subversive group of radicals who will bring the raw voice of the streets into a high cultural forum. Comparisons with the Banksy exhibition will inevitably be made, says Cumming, although not all of those involved in Rough Cut Nation are graffiti artists. "It's not just street-savvy, sub-Banksy stuff," he says. "We have a number of serious artists, such as Kirsty Whiten, who is a real rising star in Scotland."

Some artists will use hand-painted wallpaper by award-winning designer and artist Jo Bashford, formerly of Timorous Beasties; Skint's murals will project medical slides of DNA cells and muscle tissue onto the walls; Pete Martin, who is 32 and a tree surgeon by day, will be creating sculptures using wood, found objects and weeds.

Each of the artists has been asked to "respond" to the gallery's famous mural scheme, created by William Brassey Hole between 1889 and 1898. The mural, in the gallery's entrance hall, depicts important events from Scottish history, albeit in highly fantasised versions.

Many of those taking part in the Rough Cut Nation use pseudonyms for the purpose of protecting their anonymity. Skint, among others, does not want his photograph taken. Two Edinburgh-based Frenchmen, who go by the name Paco, will translate the calligraphy of the ancient Book Of Kells into a fresco incorporating a mediaeval monk "in Nikes, with dark tattoos". The Glasgow-based graphic designer Mike Inglis, as well as artists Janie Nicoll, Jason Nelson and Rachel Levine, plan to subvert Hole's high cultural vision and mock his sensibilities.The gallery floor, painted in black-and-white mourning tartan, will be the site of a collaboration between the painter Fraser Gray and the artist known as Machism - an installation set "in limbo" that will "explore the apathy and mundanity of Scottish life".

"The Hole murals allegedly depict scenes from our turbulent past, but they're all imagined events, fantastically untruthful and very sentimentalised, although beautifully painted," says Cumming. The new exhibition, he says, will veer from being provocatively disrespectful to making some deeply serious points about the dark nature of the Scottish psyche. In order to present their own version of Scotland's story, Cumming explains that the artists must first destroy the gallery's main exhibition space, hence today's meeting of most of the "crew", who are clearly impatient to get to work creating art out of mayhem.

"It's just too pristine for us, too regimented," says Skint, scoping the space.

"Some of the artists here are more used to spraying work onto crumbling brick walls in old factories or on demolition sites," says Cumming. "The Portrait Gallery is going to be an interesting, fun place to be this Festival."

But just how disturbing and dangerous will Rough Cut Nation be? Surely when street art is given the imprimatur of an indoor gallery space it loses its ferocity? Can it still lay bare the underbelly like, say, the work of the late Jean-Michel Basquiat, the New York graffiti artist? "I believe the culture of the street is much more accepted these days," says Skint. "Look at the way stencil is used as a marketing tool - it has almost become a cliché of the art form. The moment street art is sanctioned and moves indoors it's no longer street'." Still, for some of the artists, this must be the first time taxpayers' money has been used to show their work rather than scrape it off walls.

Skint and artists such as Elph, who works in empty factories using old wires and bits of machinery left to rot, prefer to "draw" on broken-down brick walls. They believe their art improves the urban landscape. "Honestly, we're not vandals," says Skint. "A lot of our work is character-based, which is why it's going into the Portrait Gallery, which is all about the people of Scotland. The sites we work in are often decaying, left to rot and almost literally falling down, but we bring life back into dead spaces. We're always looking for areas where we can get away with stuff and maybe make people think about the urban landscape around them."

In doing so, there is always an element of risk. "We usually work in pairs so that one of us can watch for the graffiti police," he says. "We once spent a day in an old, dilapidated police station where we painted the walls and installed sculptures. The next day it had all gone. Some of us are on police files. There's a police officer in Dundee, for instance, whose job is to go round photographing all the graffiti and street art. But we don't do it on folks' houses or in areas of natural beauty. We prefer things that are rotten, almost corrupted - it's about reclaiming stuff."

Inspired by skateboarders, urban graffiti, punk and hip-hop music, there are many sub-cultures within the world of street art. Among those, "taggers" use their tag - or signature - to develop astonishing flourishes, while freestylers use complex letter forms to spray abstract versions of their tags or even four-letter words.

"When they get caught they have to change the name, though," says Cumming.

Hardcore "bombers" will spray on anything and everything. They're the real vandals, according to Highlands-based DUFI, the acronym adopted by Al MacInnes, 32, and Fin Macrae, 36, who are creating a massive portrait of "a hoodie Jesus" for Rough Cut Nation. The pair have emailed various people from the Church of Scotland, Islamic societies and Buddhist organisations, requesting a one-word answer to questions such as: "Who would you say Jesus Christ was/is?"

"We want to have two giant hands in the image and a huge hole in the wall," says Macrae, a photographer whose work is already in the Portrait Gallery collection. He formed DUFI with MacInnes, his graphic designer brother-in-law, six years ago. "We began by stencilling the walls of me and my wife Margo's spare bedroom,"says Macrae. "When we started we were both already fascinated by graffiti, especially stencil work."

"We never actually set out to be graffiti artists," says MacInnes. "After all, we're based in the Highlands, and croft houses are not the easiest things to create street art on. In Inverness,there was no street graffiti or stencil work, so we started doing projects with kids."

In 2006, the pair were commissioned to make public art in Inverness. They staged one-day "revolutions", with abseilers throwing a red banner across one of the city's tallest buildings. Their latest commissioned streetscape involves carving bizarre, quirky stories into Inverness's stonework. "There are layers of information buried in the stones, stories that people gave us to layer underneath the carvings, so it's rather like graffiti because it's all about people leaving their mark," says MacInnes.

As Highlanders, they wanted to put their own twist on the religious icongraphy of the Hole murals, hence their huge portrait of a Scottish Jesus. "MacJesus," says Macrae, handing me his business card, which reads: "DUFI: guerrilla art & creativity."

Rural interventions are Rachel Levine's trademark. At 21, she has recently been accepted to study at Glasgow School Of Art and already has an intriguing body of work to her name. Levine's uncle is the acclaimed Scottish artist and photographer Calum Colvin. "So no pressure there," she jokes. She grew up with art and is enthralled by ancient Scottish myths, legends and folklore.

Levine draws strange creatures - rabbits with antlers, for example - and then leaves her work in rural environments, beside rocks or trees.

Kirsty Whiten, 32, is by no stretch of the imagination a street artist. Yet she is influenced by the urban environment and has received critical acclaim for her portraits of residents of Edinburgh's Dumbiedykes housing estate. "My work is fantastically detailed and time-consuming, so I will be doing paste-ups of existing pieces and work around and with everyone in the show," she says. It'll be new for me because I'm used to working on my own.

"I would like to try to echo the Hole frieze with some of my portraits, such as my schemie-centaurs'. They are lads I found hanging around beside a bus stop, yet they are heroic because I've turned them into centaurs. Although I don't think my work overlaps with street art, I do think that the best street art overlaps with Pop Art . I like the idea of making motifs and creating visual witticisms with my work." She gestures towards Hole's looming mural, noting its obvious dearth of women. She hopes to see a greater representation of the fairer sex in Rough Cut Nation.

Janie Nicoll, 44, is a Glasgow-based artist and photographer. In the days immediately preceding the closure of the Portrait Gallery in April, she asked visitors to ape the poses of the subjects of famous portraits in the collection. "I got a lot of Flora MacDonalds and so many Mary, Queen Of Scots, so that should redress the balance as to images of women," she says. "They fit in with the idea behind Rough Cut Nation, because you get a sense of our hybrid, mongrel nation. Some of these portraits' will be projected in the exhibition."

Nicoll also plans to repaint an existing piece, We Are All Prostitutes ("the title of a 1979 song by The Pop Group") which uses lettering from gang graffiti she discovered in Maryhill, Glasgow. "My work uses a lot of text, so I'll wait and see what other people do in the Portrait Gallery, then I'll respond to that," she says. "I want to wait and see what or who inspires me."

"Me too," says Pete Martin. "I won't know what my work in this exhibition is about until it's finished."

"Exactly," says Skint. "We're doing this because it's about the joy of making something in a dead space. I love the idea that Fraser and Machism are setting their installation in limbo. I think all of us involved in this show are in a weird kind of purgatory since this gallery is neither closed nor open."

Rough Cut Nation is at the Scottish National Portrait Gallery, Edinburgh, August 7-30.