BMW’s first diesel-powered 3 Series arrived in Australia in mid-2006 on the back of rave reviews from Europe and it did not take long for us to realise what the fuss was all about.

Costing just $3100 more than the equivalent 320i petrol-engined model, it delivered much better performance and much lower fuel consumption while still offering the sort of refinement we had come to expect from the 3 Series range. No wonder GoAuto described it at the time as “the complete compact sedan”.

Now we can report that the 320d is even better than before, thanks to the installation of the now familiar (as fitted to the 120d, 520d and X3 2.0d) third-generation 2.0-litre common-rail direct-injection turbo-diesel four-cylinder engine, which produces 125kW of power at 4000rpm and 340Nm of torque at 1750rpm.

On a brief drive through the country at the media launch, the 320d reminded us of how smooth, refined and quiet it is – not something you can say about every turbo-diesel on the market.

With an extra 10kW and 10Nm on tap, as well as being 20kg lighter thanks to the new engine’s all-aluminium construction, the 320d feels even more lively than before and this is confirmed by the stopwatch. The 100km/h sprint comes up in 8.2 seconds, which is an impressive 0.6 seconds faster than the previous model.

At the same time, the official combined fuel consumption figure is some 10 per cent lower than before at a frugal 6.0L/100km.

Cruising along at regular highway speeds and driving into town, you would never know you were driving a diesel, so well is this car engineered.

With such refinement, performance and economy, you wonder why so relatively few people choose the 320d over the 320i. Last year, BMW sold 3500 2.0-litre petrols while ‘only’ 500 chose the diesel.

On the scenic but largely unchallenging roads of the launch drive, we were unable to fully extend the chassis, but we know from experience how capable it is.

We still have grave reservations about BMW’s run-flat tyres, which we have previously found to be dreadful over bumps and potholes in the city, but we also recognise that they are getting better with each generation.

Stepping out of the sporty 335i Touring into the 320d, we were immediately impressed by the extra cruising comfort and especially the improved steering weight and feel. It was certainly not a let-down stepping into a car that is almost half the price of the rip-snorting wagon.

The remarkable turbo-diesel pulled strongly through the rev range and was unconcerned by road undulations, effortlessly maintaining its speed and momentum climbing hills on which you could rightly expect a 2.0-litre compact sedan to struggle.

But this is no ordinary compact sedan and buyers in that prestige market segment would be well-advised to look closely at the new 320d, which represents excellent value at $56,700 with the standard six-speed automatic transmission (even though you will probably spend $10,000 more on extra equipment).