IT'S been more than 25 years since a British car maker released a new model with an all-new engine but Jaguar is about to change that with the launch of the XE sports saloon - a milestone motor in more ways than one.

Not only is it the first Jaguar to be built within the £1 billion 'factory within a factory' at the Land Rover works in Solihull but it also marks the debut of JLR's new Ingenium family of engines.

It is also the most economical car Jaguar has ever made with the XE diesel breaking the 75mpg mark.

On top of that it is crammed with technology including the world's first low speed traction system designed to help a rear wheel drive car deal with poor road conditions and wintry weather.

More significantly it sees Jaguar going head to head with the big hitters from Germany in the executive car market - a sector dominated by the likes of BMW, Audi and Mercedes.

With prices starting from £26,990 Jaguar is taking an aggressive stance and is fitting every XE with sat nav, cruise control, alloy wheels and a digital audio system.

Then there's a three year, unlimited mileage warranty, service intervals of up to 24 months or some 20,000 miles and a resale value predicted to be more than 40 per cent after three years - factors vital to business buyers who will make up a large chunk of the XE's target audience.

So are emission figures and the XE scores again by being the only non-hybrid in this league which can dip below 100g/km.

But to be the boss Jaguar has to sway those who believe German engineering is best and driving the XE is the only way to discover that this really is the coolest cat on the block.

The handling is sublime, the power plentiful and the whole experience makes it the best Jaguar saloon to date.

Putting the new 2.0-litre diesel through its paces on some marvellous roads around Bilbao in northern Spain the XE demonstrated that modern Jaguars have very special qualities all of their own and can now outperform anything offered by the Teutonic trio.

Rear wheel drive is a classic trait but the XE is made almost entirely from aluminium and that makes it solid as a rock.

Driven hard along some sinewy mountain roads nothing could faze this new baby Jag.

Engage dynamic drive mode - one of four pre-programmed settings available at the touch of a button - turn the rotary gear selector on the auto box to sport and the XE responds instantly and very precisely.

It is the first time Jaguar has used electronic power steering instead of a hydraulic system but there are no compromises and the feel is smack on, nicely weighted and intuitive.

Paddle shifters are included with the eight speed auto box (six speed manuals are £1,750 cheaper) and it's rapid fire when it comes to gear changes - a feature that came into its own on the Navarra racetrack where the flagship XE S with its supercharged, 340ps V6 engine showed its mettle.

Few drivers will get the chance to experience the XE at the limits under such circumstances but it is here where this amazing car showed that dynamically it is peerless in its class - better even than the BMW 3-Series.

Traction systems which hold the car in check so effectively on the road can be moderated for such conditions to demonstrate the incredible qualities of the XE chassis. As such the XE has great composure with satisfying predictability.

There are no nasty surprises - even at critical moments and the car retains a neutral composure where many others would be twitching.

Jaguar is becoming expert in lightweight aluminium construction and the V6 weighs in at just 1.6 tonnes - almost half a tonne lighter than a Beemer.

Top speed for the XE V6 is 155mph and 0 to 60 flashes up in just 4.9 seconds and there is little compromise with the diesel which takes 7.4 seconds to reach 60 on the way to a maximum of 140mph.

The 3.0-litre supercharged engine in the V6 is the same as Jaguar uses in other models including the F-Type sports car but the diesel is the first of its new Ingenium engines made at another new JLR factory in Wolverhampton.

It comes in either 163 or 180ps states of turbo boost and the higher powered version we drove costs from £30,275. A more powerful twin turbo is on the cards and appeared in cutaway form installed in a static exhibit shown at the XE launch event.

Jaguar claims that both manual and automatic versions of the 180ps diesel are good for 67.3mpg with a CO2 figure of 109g/km and on our rather spirited drive through the Spanish countryside we managed to average 40 to the gallon. Under the circumstances that's nothing to complain about and with stop/start as standard it's set up to cope well with everyday traffic.

Fuel tanks capacities vary across the XE range. The petrol models have 14 gallon tanks while the lower powered diesel - the 75mpg engine - carries only 10.5 gallons as opposed to the 12.5 gallon tank fitted to the 180ps version.

Conveniently, both the diesels have AdBlue top up points in the boot so the emission cleaning agent reservoir can be refilled easily without having to take the car to a garage.

Boot space is par for the course in cars of this class at 450 litres - and that's with a spare wheel - and the room inside is generous front and rear.

Cabin refinement is top class and like every other aspect of the XE has been designed with flair.

The dashboard has what Jaguar calls a Riva Hoop - a curved finish inspired by the classic Italian speedboat design which sweeps below the windscreen and flares into the door capping.

It is an unusual but distinctive effect and so is the way the outer vents in the dash extend into the door linings.

The XE dares to be different and it succeeds on every count.

On the high grade Portfolio XE we drove (£35,425 for the diesel auto) leather abounds in the interior giving a traditional whiff of Jaguar exuberance tempered with some high technology in the form of an eight-inch touchscreen and an optional head up display with high definition graphics created by a laser beam.

The high tech is immense and the XE can come with Internet connectivity on the move, all round camera systems, automated parking and lane departure warnings as well as adaptive cruise control, traffic sign recognition and emergency braking.

In the middle of all this are some delightful touches such as interior lights which are operated just by touching your finger on the casing and an image of an old fashioned red telephone kiosk as the onscreen icon for the Bluetooth phone system.

It is a reminder that this car is British to the core and made by a company which has invested the best part to £2 billion in the project creating thousands of jobs in the meantime - a demonstration of how things have moved on since the days when the K-Series engine was first introduced in the then new Rover 200 back in 1989.

Drive an XE and you are not only displaying a certain nous when it comes to car choice but you are also flying the flag for cutting edge British automotive technology - a feelgood factor that's second to none.