  We study finite temperature string scale $AdS_3$ backgrounds. One background
is $AdS_3 \times S^1 \times T^2$ in which the anti-de Sitter space-time and the
circle are at the radius $\sqrt{\alpha'}$. Using path integral techniques, we
show that the bulk spectrum includes a continuum of states as well as
Ramond-Ramond ground states that agree with those of the symmetric orbifold of
the two-torus after second quantization. We also examine the one-loop free
energy of the background $AdS_3 \times S^1$ at curvature radius $\sqrt{2
\alpha'/3}$. In the space-time NSNS sector, the string theory spontaneously
breaks conformal symmetry as well as R-charge conjugation symmetry. We prove
that the minimum in the boundary energy is reached for a singly wound string.
In the RR sector, we classify the infinite set of ground states with fractional
R-charges. Moreover, we remark on the behaviour of critical temperatures as the
curvature scale becomes smaller than the string scale. In an appendix, we
derive the Hawking-Page transition in string theory by integrating a world
sheet one-point function.
