I would really recommend Condemned : Criminal Origins. Although a lot of people find the slow movement tedious I think it really paces the game well. Condemned 2 was an entertaining game but certainly not scary. The original kept a consistent atmosphere and didn't jump the shark in a ridiculous way.
The Resident Evil remake on the Gamecube is probably may favourite classic Resident Evil. It still looks pretty good and the addition of crimson heads (zombies that are killed turn into crimson heads after a fixed period of game time, which are faster and more powerful zombies) really makes backtracking a more fearful experience.
I am also with most people that Fatal Frame (or Project Zero in my country) should be played, or to a lesser experience Kuon. Maybe that's just because I think rural Japanese settings are just terrifying but Fatal Frame is also a pretty well designed horror game, which is uncommon.
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