Audi's A3 has raised its image and class benchmark, says motoring editor Andy Russell.

At first sight it's not difficult to see why some people were not particularly excited about the third-generation Audi A3 compact hatchback, saying it did not look that different from the previous one.

To be honest they're right. If you know what you are looking for you'll spot the sharper, bolder coupe-like styling, the new family face and more dynamic design – on the three-door model (the five-door Sportback doesn't arrive until March).

Yes, it's certainly a good-looking hatchback but then you could say the same for the outgoing model. This new one takes it to a new level honing the classic Audi styling.

But it is the interior that really sets it apart from the previous A3 and premium rivals – great news as you spend a lot of time there.

The new model blows the previous generation away in terms of quality and image for the interior looks and feels as if it comes from a car a couple of classes above and should cost far more money than it does.

I loved the slimline screen rising from the top of the fascia for the infotainment system, phone and satellite-navigation (the latter not the easiest to use), the quality of the classy, tactile, textured trim, the exemplary fit and finish, the straightforward dials and bank of switches across the dashboard above the alloy rotary knobs and push-buttons for the heating and ventilation system. Most functions are operated by the latest multi-media interface (MMI) controller between the front seats, alongside the electronic parking brake switch – it's all very clean, clear, clinical and intuitive to use. And the four highly-detailed circular air-vents on the fascia, which look like jet engine outlets and swivel so smoothly, are exquisite.

The three engines at launch – 122PS 1.4-litre TFSI and 180PS 1.8-litre TFSI turbo petrol and 150PS 2.0-litre TDI turbo diesel – deliver efficiency gains averaging 12pc. The 1.4 petrol and 2.0 diesel get six-speed manual gearboxes and the 1.8 petrol a seven-speed DSG automatic as standard.

Diesels are popular in Audis and the new, more powerful 150PS 2.0 TDI is exceptionally good – you don't need anything more. It doesn't sound like a diesel, nor drive like one. It's particularly perky from low revs, punchy in the mid-range and revs happily, not that you need to work it hard to make brisk progress – you'll be surprised how quickly speed builds, especially given the lack of noise. I was getting MPG in the low 50s and a best of 63. The six-speed manual gearbox has a short, precise shift.

The Sport test car I drove has drive select adaptive dynamics system as standard with efficiency, comfort, auto, dynamic and individual settings which alter the steering weight and throttle sensitivity but the new A3 just drives so well I saw little point messing with settings.

The suspension is firm enough to give a sporty, agile feel and good body control with lots of grip through corners but absorbent enough to iron out road defects without fuss and even with the Sport model's bigger 17in wheels you have to be on a rutted, corrugated surface before there is noticeable feedback in the cabin. SE models have comfort-oriented standard suspension which can be specified on Sport and S line versions instead of the firmer set-ups.

Even in the three-door model it is pretty easy getting in and out of the back seats with the front ones tilting and sliding. Once in the back there is decent legroom for adults and good headroom but little side windows make it feel smaller than it really is.

The good-sized boot has a two-level floor – just below sill height for small loads or you can drop it right down to stand large suitcases upright. Rear seat backs fold 60/40 on to the cushions but need some weight on them to lay totally flat.

The Sport's excellent front seats nip and hug in all the right places and, short or tall, the driving position has all the adjustment you need to get comfortable – again ideal for long-distance drivers.

SE features 16in alloy wheels, air-conditioning, multi-media interface radio with electrically folding screen, preparation for SD card navigation, iPod connection, trip computer, Bluetooth and multi-function steering wheel with voice control. Sport gains 17in alloys, drive select adaptive dynamics system, two-zone climate control, sports seats and sports steering wheel and aluminium detailing. S line includes 18in alloys, S line body styling, xenon headlights with LED daytime running lamps and part-leather seats.