In an unheard of move, the company has allowed journalists to sample pre-production versions of the crucial new model to ensure its driving dynamics are talked about as much as its looks.

Although the 1-Series is penned by American Chris Chapman, the controversial style is unmistakably 'new' BMW, as envisaged by the firm's design head Chris Bangle. It's crammed with curves, slashes and eye-catching features, and it makes the competition, particularly VW's new Golf, look conservative by comparison. The newcomer is 240mm shorter than the 3-Series and 30mm down on the Compact, while the wheelbase is also 60mm shorter. With the front wheels at the nose of the car, the extra bodywork overhang is behind the rear axle to give a respectable 330-litre boot - 1,150 litres with the rear seats folded. The Compact is set to soldier on for a couple of years until the full 1-Series range (three-door hatch, saloon, coupé, estate and perhaps even a sports car) arrives.

At launch, the BMW will be available with a choice of four-cylinder engines: two British-built Valvetronic petrol units - a 115bhp 1.6-litre and a 150bhp 2.0-litre - and an Austrian-made 2.0-litre turbodiesel with two different outputs, 122bhp and a massive 163bhp.

A five-speed manual gearbox will be standard on the 1.6, a six-ratio on all the rest, with the option of a six-cog automatic to come. With prices starting at around £15,500 for the entry-level 1.6-litre, the 1-Series will not be cheap, and although it's aimed at the Audi A3 and new Golf, it's likely buyers will trade up from the best-selling Ford Focus or even down from a 3-Series.

Bearing this in mind, the car has to cater for a wide audience, and from the front seat the combination seems to be right. The inside is less controversial than the exterior, and there's a real feeling of space. Its uncluttered instrument binnacle contains dials for speed and revs, while a centre console houses a simplified - but still frustrating - iDrive screen-based driver control system.

The glovebox isn't huge, yet there's plenty of storage in the doors and centre console, with even a place to plug in your iPod MP3 player. But in the back, things become cramped, especially if those in front stretch out. The situation is made worse if the sunroof option is chosen, as this reduces the ceiling height by at least an inch. Start up the 2.0-litre petrol model and you are rewarded with a smooth engine note.

With this version weighing more than 1,250kg, the unit's outputs of 150bhp and 200Nm of torque mean it's no firebrand. The top speed is 135mph, the 0-62mph sprint takes 8.7 seconds and economy is around 38mpg. To get the best out of this engine, it needs to be revved up to the 6,500rpm red line, yet it remains refined. The six-speed gearbox is easy to use, with well spaced ratios and surprisingly short shifts.

Perhaps the major concern is for the 1.6, which was not available to drive. This model will deliver only 115bhp and 150Nm of torque. Its top speed will be 124mph, while the 0-62mph sprint Á Á takes 10.8 seconds and the car returns 37.6mpg. Having driven the 2.0, this model is going to be hard work.

Until the six-cylinder petrol engines arrive in 2005, the performance option will be the turbodiesel, with 163bhp and 340Nm of torque. This unit growls purposefully on start-up, and has amazing mid-range grunt. Top speed is 137mph, 0-62mph takes 7.9 seconds and fuel economy is 49.5mpg. Even with its extra 60kg, the diesel is relaxed and powerful, with fine acceleration and cruising.

But while the oil-burner is the more pleasing engine, it can't match its petrol counterpart for ride and handling - although these were pre-production cars. Both models have a slick relationship between the major controls and flatter the driver. The brake pedal is beautifully weighted, and the steering has a meaty feel, with direct responses to inputs.

However, the petrol variant has the edge here. Turn-in is more precise, body roll better controlled and the damping more finely judged. The diesel is blighted by its extra weight, tilting more and affecting handling, causing the electronic stability systems to cut in earlier.