It is Fiat's triumphant return to what it does best; building small cars for people to fall in love with. Largely based on the Panda, itself highly praised and a sales success, the 500 draws on Dante Giacosa's 1957 original for its styling. The 500 loses a couple of doors and some practicality over the Panda but considerably ups the visual ante. The car is powered by the same 1.2-litre and 1.4-litre petrol engines or 1.3-litre diesel as the Panda. The original 500 sold nearly 3.9 million examples in its 18 year lifespan and no doubt Fiat, which finds itself enjoying something of a revival, is hoping for a similar success.

As well as sharing its underpinnings, the 500 is pegged fairly close to the Panda in terms of pricing, beginning at less than eight grand for the base 1.2 in Pop trim, rising to £9,300 for higher spec 1.2s and entry level 1.3 and 1.4s. The top level Lounge and Sport versions of the 1.3 and 1.4 come in at a remarkably low £10,700 given their level of equipment, helped by the fact that this most Italian of cars is actually built in Poland with its lower wages. The pricing places it squarely between higher spec Citroen C2s, funky new Mazda 2, ageing Ford Fiesta and Nissan Micra and entry level Peugeot 207s, Renault Clios and of course the Mini One.

Well it's highly likely that there will be one to suit since Fiat has taken heed of the way in which BMW marketed the new Mini and is offering the 500 with a similar plethora of personalisation options, claiming a total of 500,000 permutations. All get ABS, central locking, electric windows and mirrors, a CD player and seven airbags. Lounge and Sport add voice activated Bluetooth, MP3 player connectivity, air-con, alloys and various trim upgrades. In addition there are seven alloy wheel choices, 12 exterior colours and eight sticker kits plus various interior upgrades. None of which distracts from its essential role as a head-turning city car which the 1.2 fulfils admirably, the 1.3 offers greater refinement and the 1.4 added fun.

Makes the Mini, the car with which it will undoubtedly be compared despite the price difference, look instantly uncool. It really is genuinely lovable in the manner of Fiats of old and its looks, heightened by detailing such as bold red brake callipers, raised smiles from onlookers of the convoy of cars nipping through south London. In the 1.4, turning the key has the same effect, the engine zinging into life with an Italian bark and revving con brio. It simply begs to be thrashed, doing its best work above 4,000rpm. This enthusiasm suits the car which always feels quicker than the speedometer claims. Not darting in and out of traffic and chucking it round bends would be an affront to its nature.

The rasping exhaust note and high-revving nature of the 1.4 could become wearing over long distances and the steering, while quick and offering decent levels of feedback, feels curiously over-sprung around the straight ahead position, due to a strong self-centering action. The rounded centre console from the Panda, while putting the gearlever for the six-speed 'box within easy reach, does rather impinge on space, necessitating an awkward twist of the ankle to reach the clutch rest. The interior does also feature some disappointingly hard plastic, particularly on the doors. The interior is also quite colour sensitive, dark trims suit it and the lack of a lid for the glovebox means no secure stowage points within the cabin.

Tick the boxes for the lighter fabrics and the ivory coloured accoutrements and the whole cabin is lifted, particularly in cars with bright exterior colours, thanks to a body coloured dash insert and a funky instrument panel features concentric circles for the speedometer and rev counter. Front seats are surprisingly comfortable, as is the ride, even on the Sport version with its stiffer springs, but it's a shame the wheel doesn't adjust for reach as there is a trace of the old Italian 'short legs, long arms' driving position. Bootspace and rear legroom soundly beats the Mini as I was able to sit behind my 6'4" driving partner although my head did brush the rooflining.

Fiat has been singled out as being one of the greenest car companies around (presumably ignoring its ownership of Ferrari and Maserati), averaging 144g/km across its range in 2006. The 500 fares even better with the 1.2 petrol and 1.3 diesel both slipping under the 120g/km CO2 threshold (119g/km and 111g/km) and sipping fuel at the miserly rate of 55.4mpg and 67.3mpg respectively. The 1.4 is itself hardly a dipsomaniac, averaging 44.8mpg and emitting 149 grams of CO2 per kilometre.