YOU'VE gotta hand it to BMW. Just when it seemed Mercedes-Benz had snatched the upper hand by releasing a blistering new 285kW DOHC 5.5-litre V8 to replace the 225kW/460kW SOHC 5.0-litre version in last month's all-new S500 limo, along comes the Bavarian brand with not one, but two new V8s.

What's more, while the new Benz V8 will power the facelifted E-class by around October and a smaller-capacity V8 will eventually be shoehorned into all upstream Mercedes models, BMW has already fitted its new 4.0-litre and 4.8-litre eights into not just the 7 Series flagship, but now the 5 Series sedan range too. And the 4.8 also powers the upgraded 650i coupe and convertible.

Talk about one-upmanship.

Of course, while the 4.0-litre V8-powered 540i marks the return of one of GoAuto's favourite nameplates in the previous-generation 210kW E39 540i, the 550i brings a whole new world of performance to the mainstream 5 Series range - notwithstanding the ballistic 373kW V10-powered M5, of course.

First seen in the upgraded 750i last June and replacing the 245kW 4.4-litre V8 found in the 545i sedan (as well as the superseded 745i sedan and 645Ci coupe/convertible - and the X5, which will continue with the 4.4 until its replacement appears next year), the 550i engine delivers 10 per cent more power (270kW), nine per cent more torque (490Nm) and, commendably, the same fuel consumption.

Noticeably stronger across the range, more pleasing to the ear and even freer-revving than the 4.4, the 4.8-litre 550i represents a quantum leap in driveability, outright performance and sheer exhilaration over the more retrained 4.4. Which is quite a feat.

Similarly, as in the 740i, the 225kW 540i - which in the previous 5 Series generation did a fine job as the "poor man's M5" - constitutes a significant improvement on the 200kW 3.6-litre V8 found in the superseded 735i and, in Europe, the 535i.

While the 4.0-litre V8 isn't as lumpy and lacks the prodigious torque delivery and unfettered attitude of its larger sibling (but is still incredibly free-revving, well beyond its 6500rpm redline, in true BMW style), the 540i now gives V8 5 Series buyers a much more accessible V8 option.

We averaged an acceptable 13.9L/100km fuel consumption figure during the launch drive, aided by some open road stretches in which the engine required just 1800rpm to cruise at 100km/h in top gear. The 550i was noticeably thirstier - partly because we couldn't resist its willingness to rev - but no moreso than the 545i.

While yet another $1000 price rise for 2006 sees all the 5 Series pricetags sneak up in price, at $135,500 the 540i is still $26,900 cheaper than its 4.8-litre 550i stablemate.

Of course, the 550i doesn't offer $27,000 worth of extra performance over the 540i, but it does add clever and worthwhile standard equipment, such as a head-up display that very effectively presents digital speedo and satellite-navigation images directly in the driver's line of sight. In today's speedo-watching age, it's a real boon.

Whether the 540i is worth the $23,000 extra over the highly polished six-cylinder 530i is also debatable, but apart from the burble of a European V8 and the substantial gains in tractability it brings, the 540i also offers a host of extra standard fare.

This includes chrome exhaust extensions, alarm, lumbar adjustment, headlight washer system, adaptive HID headlights, 18-inch Star-spoke light alloys, navigation system, TV, voice recognition and high-beam assist.

Both new 5 Series variants also feature the redesigned (read: simpler) iDrive Controller and a start/stop button on the instrument panel, which one can't help feeling is just a little gimmicky.

Of course, both new V8s also benefit from the latest-generation dynamic stability control system, which includes Hill Start Assist, Brake Standby, Brake Drying, Brake Fade Compensation and Comfort Stop - all of which combine to make the 5 Series brakes supremely powerful with effortless pedal input - but just a little too sensitive for our liking.

Of course, both V8s are mated to the same six-speed Steptronic semi-auto that's found in just about every European luxury car now, save for Mercedes which employs a seven-speed that's almost too clever for its own good. It does, however, offer steering wheel-mounted shift buttons - unlike the 5 Series.

Otherwise all the E60 5 Series hallmarks are there: standard active steering that's worth its weight in gold in tight parking situations yet is barely noticeable during enthusiastic driving, a high quality interior that perhaps lacks the sense of occassion of its predecessor, a rear seat that's no more commodious than its forebear or its rivals, and a polarisingly modern styling that's striking on the road but lacks the simple elegance of the E39.

At the moment Mercedes' 5.0-litre E500 is priced at $157,900 - more than $4000 below the upgraded 550i, which certainly demands a sizeable premium for its extra performance. Just how much Benz increases the price for its 5.5-litre E500 will be interesting.

But just as the new 540i is a far more convincing performer than its E39 namesake, the fact the new 550i offers similar performance to the brilliant E39 M5's 5.0-litre V8 will be all that matters for some. It also happens to be $67,000 cheaper.