Fiat's iconic Panda is about to be born again in spring but a new petrol engine has given the current city car a new lease of life and fun, says Andy Russell.

It's easy when talking about little cult cars to think of MINI, the VW Beetle and Fiat 500 – all born-again motoring icons.

But I would like to add Fiat's Panda which, despite more than six million sales worldwide since the original was launched in 1980, has to my mind never received the full recognition it deserves, particularly now it has been overshadowed by the trendier 500.

After a few years absence the name was revived with a second-generation model in 2003 and it's still going strong which says an awful lot about it popularity – the Polish factory that builds it turned out its two-millionth this summer.

The Panda is still a cracking little city car, borne out by a host of awards, and budget motoring at its best with good deals and low running costs.

It's been around eight years but I still don't need much of an excuse to pander to the Panda and new engines gave me that excuse.

Even with the third-generation model revealed at the Frankfurt motor show in September ahead of going on sale in spring, Fiat has breathed new life into the current model with new Euro 5 1.2-litre petrol and 1.3-litre diesel engines which provide better performance while being meaner and greener when it comes to fuel consumption and emissions.

To be honest I can't see the point of a diesel in a city car when you have a good petrol engine and the new 1.2-litre unit is just that. Replacing the previous entry-level 1.1-litre, the new petrol engine, already being used in the Fiat 500 and Punto supermini, has given the Panda a new lease of life so, even though its days are numbered with an evolutionary new model being lined up, you can't dismiss the current model.

It's worn its age well – still funky to look at and fun to drive – and some enticing deals will make this cute car even more attractive.

In a relatively small car, the new 69bhp 1.2-litre engine pushes the Panda along nicely. On paper it might not look spritely, with 62mph from rest in 13.4 seconds and the ability to top the ton, but on the move the Panda feels quite lively.

Smooth and flexible at low revs, it happily poodles along at 30mph in traffic in fifth gear which does wonders for economy and a mix of city driving and long fast runs returned 54mpg – not bad considering the upright, square Panda is hardly aerodynamic at speed.

What I really like about these little Fiat engines is their willingness to rev – drop a gear or two and the Panda picks up cleanly and eagerly for nippy acceleration and overtaking. It's not a chore keeping the engine on boil because the five-speed gearbox, with its ideally-placed fascia-mounted lever, has a light, deft action which also takes the strain out of city driving. Once up to speed the Panda can hack it on motorways, keeping up with the flow of traffic and remaining reasonably quiet and refined.

It also drives well. The suspension is sensitive to roadwork scars and manhole covers at low speed but travelling faster the ride becomes more composed and comfortable. The Panda also handles well – compact dimensions and wheels at each corner give it the biggest-possible footprint making it nimble through corners and helping to keep body roll under control.

The Panda is surprisingly spacious with room for four adults, while the 206-litre flat-sided, low-silled boot is all useable space and enough for a large suitcase or a decent load of shopping. The one-piece rear seat back on my test car folded flat but not level with the boot floor.

The fascia is simple but effective with clear instruments and big-buttoned controls and rotary knobs for heating and ventilation. It's all hard plastics but easy to wipe clean and hard-wearing and there's lots of storage spaces. The high driving position is rather upright and the steering wheel only tilts but, combined with the low windowline and large areas of glass, has first-rate visibility.

The Panda is offered in Active, MyLife and Dynamic trims. All come with electric power steering, electric front windows, anti-lock brakes, radio/CD and front airbags. The new MyLife trim adds extra value in the form of 14in alloy wheels, air-conditioning, remote central locking and a 12v socket.

Simplicity is key to the Panda's appeal. It doesn't try to be anything it isn't – just a great value, cute city car with a sense of fun and that's why it's a motoring icon.