The Princess and the Goblin by George MacDonald

In THE PRINCESS AND THE GOBLIN, eight-year-old Princess Irene lives in a magical, remote kingdom, with only her nursemaid "Lootie" for company. Irene knows nothing of the hidden danger in the kingdom, the goblins. The goblins lurk in mines under the ground, where they plot to overthrow the humans who live on the surface and make them slaves.