The Audi A3 is a crucial car for both Audi and its parent company, Volkswagen, as the competition in the premium compact class intensifies with proper five-door hatchbacks like the Mercedes-Benz A-Class and the impressive Volvo V40 soon to join a relatively new BMW 1 Series.

Not only is the Audi A3 is the brand’s biggest-selling model globally, it debuts a new-generation, high-tech, lightweight platform that will underpin literally dozens of models for the company over the next decade (including a certain model called the Volkswagen Golf).

It simply has to be good, with a massive weight on the A3’s shoulders as VW targets becoming the world’s largest carmaker in the world (it’s already the most profitable).

While Audi invented the small premium C-segment with that first car, it can’t say in 2012 that it’s reinvented it, as the exterior design plays it safe compared with its rivals. The third-generation A3 is clearly related to the cars that came before it, with the familiar Audi grille now accompanied by LED headlamps, a higher waistline and sharpened, more aerodynamic styling.

It’s a larger car, though, with a 12mm increase in width and a 23mm-longer wheelbase that’s balanced by less front overhang. Despite a sleeker front windscreen, it’s the same height and has the same side window shape as its predecessor, with the signature thick C-pillar now capped with a bootlid-mounted spoiler.

Inside is another story. The materials are exceptional, with quality leather and strong fabrics, as well as sophisticated 3D dash and door inlays. It’s a distinctively different dash design to any other Audi and makes the BMW 1 Series, which has only been on sale for around 12 months, look dated and outclassed.

There’s more front and rear headroom than before, with thinner front seats and the longer cabin meaning a six-footer fits comfortably in the back. They also contribute to the extra 15 litres of luggage space, which is now 365 litres and accessible via a 60/40 fold rear seat, as well as a clever height-adjustable floor.

The typical buyer, Audi says, will be a young and ambitious professional, so the new Audi A3 sets a new benchmark in terms of user technology. Standard kit includes a new 5.8-inch centre display that pops up out of the dash automatically upon start up. It’s a mere 11mm thick, and it’s the hub of the infotainment that includes Bluetooth, USB connectivity, DAB audio and even a WLAN hotspot.

Impressively, there’s an NVIDIA chip running the show, which will be updatable. Its speed enables some impressive options such as 3D Google maps, and while you’ll notice the well-finished centre console dial, on top models it boasts handwriting recognition (first seen in the Audi A8 limo) – and it actually works.

Even a rough ‘R’ etched out by a shaky finger is understood by the system, which can be used for sat-nav inputs, for example. If that’s not enough, voice control is standard across the range in Europe and it’s highly likely it will remain on the yet-to-be specified Australian models.

Safety sees seven airbags, as well as anti-lock brakes, electronic stability control and a more rigid structure using aluminium and hot-formed steel not only save weight, but also deliver an A3 with a five-star Euro NCAP safety rating. There’s also a host of driver assistance systems offered, such as Active Lane Assist, Park Assist and Adaptive Cruise Control.

Behind the wheel, the A3 is competent, but again Audi has played it safe and focused on technology. Impressively, it’s much lighter – an average of 80kg – than its predecessor, thanks to a near obsession with weight reduction that helps improve dynamics and fuel consumption. The entry-level A3 now weighs 1168kg.

With three brand new engines, Audi has worked diligently on refinement and composure as opposed to thrills and driver involvement. Upon release, the range will start with a 90kW/200Nm 1.4 TFSI petrol, which delivers 5.4 litres per 100km with its six-speed manual, compared with the outgoing version’s 5.7L/100km. It’s a substantial 21kg lighter than the old engine, too, and comes with Cylinder-On-Demand, which drops a cylinder when the car is cruising, as well as stop/start which is standard across the range.

The 132kW/250Nm 1.8 TFSI is the most powerful model until the S3 arrives, with a 7.2-second 0-100km/h time. It’s the most responsive and athletic of the range, with a sweet turbo whistle as you run through the seven-speed dual-clutch gearbox (there’s no manual version). It runs out of puff up top, though, but amazingly it uses less fuel than the old 1.4-litre, delivering 5.6L/100km while still being entertaining to punt along a windy road.

The third engine – a brand new, lighter 110kW/320Nm 2.0-litre TDI – is extremely refined for a four-cylinder diesel, the traditional oiler’s rattle at idle fading into a faint hum at speed. On the freeway, you won’t hear it unless you lean on the throttle, but it’s not intrusive or overly noisy. In fact, it almost has a warm burble with a heap of character and plenty of torque while returning 4.1L/100km.

A 77kW 1.6-litre TDI will join the range sometime next year as well, which will take over as the most efficient, delivering 3.8L/100km.

On the road, the A3 handles well, with great road-holding and grip on even the smallest 16-inch wheels. The new range brings more choice when it comes to suspension, with European A3s offering a Sport model with two choices – a regular and a firmer, lower sports setting, with the S Line available with both these and a third, firmer and lower again option.

Yet with the larger wheels, the A3 lacks composure, taking too long to settle and has a crashy, uncomfortable ride, even with Audi’s Drive Select in ‘Comfort’. The softer suspension makes for a more composed drive, and there’s loads of grip even without quattro all-wheel drive, which will be available from late next year. While the steering could do with more feel, it’s fun to drive on the open road yet civilised and refined around town.

So is it a winner? The A3 will arrive initially as a three-door, with the five-door Sportback joining the line-up later in 2013, with a new Cabriolet and, for the first time, an A3 sedan expect to complete the range within the next 18 months.

The broadened range, efficiency improvements and technological benchmarks for a premium hatch mean its rivals have their work cut out. Yet the A3 will also be too similar to its predecessors for some, while there are more involving, enjoyable rivals in showrooms too.

The Audi A3 will arrive in Australia in early 2013, with prices likely to start from about the $40,000 mark.