Subaru Impreza

With its unusual body-work dampers, the S204 really does represent a step forward in ride and handling over the standard STi. Yet while it has the power and pace to match the BMW M3, the Subaru needs more. What it really requires to be a contender in this market is pedigree - and it will take a few more years to achieve that.

Engineers at Subaru's secretive tuning arm, STi, have a new mission in life. No longer satisfied with making high-performance Imprezas, the group has declared: "We want to build the world's ultimate Subarus. We want our relationship with Subaru to be like BMW's M badge or Mercedes' AMG."

The news was delivered at the launch of the latest addition to STi's growing stable, the limited-edition S204. Set to arrive in the UK as a grey import, the S204 is said to have the power and the pedigree to make the company's latest dream come true.

So how does this new saloon stack up? Is it the M3 of the STi line-up? The answer isn't quite that straightforward.

On the road, the S204 is sensational. Inheriting a reworked 2.0-litre turbo four-cylinder boxer engine from its predecessor, the S203, the car puts out 320bhp at 6,400rpm, while torque is 432Nm at 4,400rpm. The 0-60mph sprint is expected to take around 4.5 seconds, and the top speed is 155mph.

From 3,000rpm, stronger mid-range torque means the driver can make better use of third gear, particularly in long corners, and still have plenty of revs for lightning exits. Push it beyond 6,000rpm, however, and the retuned exhaust note invades the cabin as it takes on a primeval howl. The six-speed gearbox has short throws. But for a car costing upwards of £24,000 - that's £7,500 more than a standard Japan-spec STi - you'd expect to have your pants blown off. Although the S204 is quick out of the blocks, it's not explosive, and could do with another 50bhp.

However, there are no complaints about the handling. The newcomer gets a stronger chassis, better roll rigidity and revised suspension. But it's the innovative step of fitting dampers to the body structure between the front and rear suspension strut towers that makes the difference. Apart from their ability to iron out vibrations and bumps, plus give a superb ride, they permit smoother initial turn-in, deliver more information to the driver and virtually eliminate understeer.

The best-handling STi so far, this car devours corners, helped partly by the grippy Pirelli P Zero Corsa tyres, which combine effortlessly with chunky four-piston Brembo brake calipers.

Inside, though, it's a different story. The cabin is based on a stock STi's, but designers have only added two leather Recaro seats - which are too tight across the hips yet cost £2,700 - and a few extra yards of high-quality leather.

As for the exterior, lose the rear wing, S204 badge and 18-inch BBS alloys, and you'd mistake this for a current STi. Yet while work is needed on the aesthetics, nothing comes close at this price for performance and cornering potential. So STi hasn't quite built a car worthy of BMW's M Division - but it's close.