If you think you could be blending some details with a Narnia story, I agree that it could be The Secret World of Og by Pierre Berton that you are looking for. The original copyright is from 1961. It was also turned into an "ABC Weekend Specials" cartoon in 1983.
Random House's description from http://www.randomhouse.ca/catalog/display.pperl?isbn=9780385659116 is, "The series follows the five Berton children, Penny, Pamela, Peter, Patsy, and baby Paul (better-known as “The Pollywog”) as they discover and explore a vast,mysterious world of caverns and rivers hidden beneath a trapdoor in the floor of their clubhouse. In their subterranean adventures, they befriend the little green inhabitants called Ogs, share their worldly knowledge with them, and, at the same time, gain a little wisdom themselves."
I had been looking for this book for many years myself. It's very hard to find at an affordable price and I recently acquired it through an Amazon seller. Flipping through it, I'm not seeing anything about the whispering conversation. They do paint one of the brothers green so he can pretend to be one of the Ogs, but I don't see anything about an actual physical transformation. I'll try to read it in the next couple of days and give a better synopsis and look for your details. Hopefully, a better synopsis will tell you if it is familiar or rule it out.
Edit: Now that I’ve read it, it seems close, but I don’t think The Secret World of Og is the correct book, but here is a synopsis just in case. There are spoilers in it.
Ogs are child-sized green “people” who live underground. The do make you think of gnomes, dwarves, elves, and other standard small humanoid creatures of folklore as you try to categorize them; however, they are a unique race. Their world is one of vast underground caverns lit by a luminescent river and filled with colorful giant mushroom forests. The Ogs scavenge items in our above-ground world which are left out in people’s yards--mostly children’s belongings. The only word in their language is, “Og,” but as the story progresses you learn that some of them have learned to read and speak English mostly from children’s comic books. When they do speak English, they speak as pirates and cowboys.
One of the Og’s tunnels to the surface is under the children’s playhouse. One day the year old baby, Pollywog, and the family’s cat are left alone in the playhouse for a few minutes and the Ogs take the cat. The baby follows the Ogs into the tunnels so they take him, as well. The rest of the children return to find the cat and baby missing, but one of them had seen an Og cut the trap door in the floor earlier and believes the green man she saw must have kidnapped their cat and brother. The children then follow after to rescue them. When the children interact with the Ogs they discover that the Ogs constantly play make believe games just like children and seem to have a hard time discerning fantasy from reality.
Some elements that match: The title and world fit your description well. Peter has to paint himself green to blend in and pretend to be one of the Ogs. The Ogs are afraid of the Snake People and think they are attacking toward the end of the story and the children tell the Ogs they will help protect them. The attack turns out to be the Og’s over active imagination mixed with their fear of the unknown. There isn’t actually a war, but to a child reader it could feel like a build up to one.
However, the whispering conversation definitely doesn’t happen and Peter doesn’t undergo any actual physical transformation. Also, the children never sneak out of their house.
