I haven't actually played the game, but from how people describe it, it sounds like you want a Slender Man version of Zelda. I'm not saying don't rip off the idea, because I think it has some potential, but I've explored this kind of dynamic in Zelda storytelling, and naturally the necessity for game design, and it's missing a lot of essentials before the idea could be a viable path to a good dungeon.
I do agree with you on the idea of scouring through a level that is pure fright in nature, but I went about this a different way. The first obstacle I hit when contemplating this idea was the presence Link would be in. Of all the kingdoms of Hyrule, and the variations in other kingdoms, no race exactly encompasses the level of scare I was looking for. Maybe if you go to Ikana Canyon in MM, or elaborate on the Redeads, but that might be too much of a stretch, seeing as how Redeads amount to the Zelda version of zombies and Ikana Canyon pretty much has its own backstory, which means it would be more so a sequel to MM. And that's not necessarily a bad idea, but it would seem smaller in scale to only focus on a story revolving around Ikana without elaborating on the other regions, while ALSO not rehashing any MM themes.
So the only solution I could come up with was to create a new race, one that derived from characteristics of previous races. Enter the Hadian race, a merger of Ordonian and Twili DNA. This is a result of the timeline I went with, allowing the expansion of Hyrule's races, and as such, the cross-breeding of different races. But, to avoid some kind of segregation theme, I couldn't simply make this race "evil" or scary overall. So they were grounded in the idea that they were very much people, but on the poorer side to Hyrule's economy. And their looks weren't that attractive either. As such, it made a great environment for enemies to blend in, as they are usually deformed beasts. But I furthered that integration of distinction by creating a new enemy, the Morphos (everything a Redead couldn't be). They're fast, vampiric, camouflaged, and generally more detailed hence their scarier nature. Their origin would most certainly be the Twili version of Redeads, and their presence in the Hadians' kingdom would be abundant due to the environment.
This region alone, is enough to create a more medieval frightful experience than OoT could in adult Link's Castle Town ventures. But what makes this level more so is the item acquired. As the game design I created permits a co-op experience, Link and Zelda both receive the Lens of Truth and the Lens of Purity, used to expose these Morphos in their hidden forms, as well as revealing other things. The catch is, since I went with a more realistic way to incorporate the lenses, they don't take magic to use, but (unless combined with the bow or crossbow, respectively) they must be held with one hand. Therefore Link and Zelda can either shield or attack in the encounter of these Morphos. So imagine walking through a dimly lit, grungy castle town, seeking the right townfolk to discuss matters of your adventure, but your vision is limited and on top of that you only fully expose them once within close proximity. It's as if a haunted house experience has been recreated. And this Morphos experience extends to the different regions and sidequests of the game.
Later in this level, the tools you acquire are used to infiltrate a Morphos Castle, which is borderline pitch black, and ultimately a wonderful experience, haha.