The Paris Ritz closes Wednesday for a two-year face-lift to bring the city's best known luxury hotel into the 21st century and keep its mega-rich clientele coming back in an ever more competitive market.

A Cadillac limousine waiting at the entrance to the Ritz, place Vendôme in Paris (Photo Daniel Janin AFP/Archives)

The renovation comes after the five-star hotel, which neighbours the famed jewellers of Paris' Place Vendome but has not had a refit since 1979, failed to win France's coveted "palace" designation marking a top luxury destination.

Owned by Egyptian tycoon Mohamed Al Fayed, it was once the hotel of choice of Charlie Chaplin, Coco Chanel and Ernest Hemingway, and the place where princess Diana and Al Fayed's son, Dodi, dined in 1997 before their fatal car crash.

The 140-million-euro (170-million-dollar) refurbishment will last until mid 2014, equipping the Ritz with a new garden restaurant and fitting out its 160 rooms with "the latest technology".

All the bedrooms will be redecorated but a Ritz spokeswoman said they would stay traditional in style, in its trademark tones of pink, almond green, yellow and sky blue.

For industry insiders, it was high time for the face-lift.

"It was a waste to see a hotel with such a location, with such a history, in a state like this," said Vanguelis Panayotis, head of development at the MKG Group hospitality consultancy.

"To justify this kind of price, you really have to offer quality on a par with the competition."

From cables hanging down in full view from its flat screen televisions, to ageing elevators and dumbwaiters, the Ritz spokeswoman admitted the hotel has some sprucing up to do to match the competition.

Like the rest of the luxury industry, the high-end hotel sector is booming thanks to demand from emerging markets, while Paris has also seen US clients flood back to take advantage of a weaker euro.

Two state-of-the-art Asian luxury hotels opened in the French capital in 2010, the Shangri-La and the Mandarin Oriental, raising the stakes for historic players like the Ritz.

Another established Paris hotel, the nearby Crillon, is closing for renovations in the autumn.

The Bristol and Meurice hotels have already had face-lifts, the Plaza-Athenee is working on an extension, and the Royal Monceau underwent a full refurbishment under its new Qatari ownership from 2008 to 2010.

Founded in 1898 by Cesar Ritz and the chef Auguste Escoffier, the Ritz is home to L'Espadon restaurant, holder of two Michelin stars, and the Ritz-Escoffier cooking school.

For closing night on Tuesday, chef Michel Roth has put on a special 240-euro menu with foie gras, blue lobster in raspberry vinaigrette with caviar and the Ritz's signature peach melba among the delicacies on the cards.

Likewise, the hotel was virtually booked out for Monday night, mostly to regulars, for prices ranging from 850 to 10,000 euros for the Coco Chanel suite.

The Ritz's 460 employees have all been promised their jobs back after the renovation. In the meantime, 320 have taken up a generous severance package offered by the hotel.

Star chef Roth will keep working for the Ritz as an ambassador, promoting it to rich clients in Asia and around the world, and the hotel hopes much his team will return once the hotel reopens.

"Many of the kitchen staff have found other employment, but most have said they want to come back to the Ritz. It's a very close-knit team," said the hotel spokeswoman.