BMW’S original E85-series X3 was roundly – and rightly – criticised for its geeky styling and low-rent interior quality, but still attracted a solid following alongside the German brand’s inaugural SUV, the larger X5, by delivering solid performance and handling in a mid-sized luxury crossover segment it had largely to itself.

Australia’s luxury SUV landscape has moved on considerably since 2004, however, and now the second-generation F25-series X3 slots in between the all-new X1 and larger seven-seat MkII X5, to do battle with new rivals in the two-year-old Volvo XC60 and Audi Q5, which has been a runaway success and so far this year is the nation’s most popular luxury SUV bar none.

Although the XC60 offers petrol and diesel power for up to $5000 less than the new X3, the latter presents a compelling case by matching the base ($62,200) price of both the Q5 and the outgoing X3, despite being as large, luxurious and well-specified as the first X5 - and far easier on the eye.

Model for model, all three versions of the X3 – entry-level 20d, mid-range 28i and flagship 30d – also offer more performance than the Audi, as well as superior fuel-efficiency.

With the top-shelf 3.0-litre diesel six not due in showrooms until mid-year, only four-cylinder diesel and 3.0-litre petrol versions of the X3 were available to drive at this week’s press launch.

We started with the X3 xDrive28i, which shares the same silky-smooth eight-speed automatic transmission as standard with the other two variants – as well as BMW’s facelifted X5 and a host of other German and British luxury models.

Although it offers slightly less peak power and torque than the 3.0-litre petrol six found in other BMW models (hence its ‘28i’ nomenclature), the mid-range X3 delivers trademark BMW petrol-six performance, revving crisply and cleanly to about 7000rpm

We didn’t come close to matching the petrol X3’s 9.0L/100km claimed fuel consumption figure, with a spirited 300km drive through NSW’s mountainous Northern Rivers region to Mount Tamborine and back returning 12.5L/100km, which is what you’d expect from a 1745kg wagon with sportscar-like acceleration (0-100km/h in 6.9 seconds – a full two seconds quicker than the former X3 2.5i).

Instantly recognisable as a new BMW SUV with its deep bodyside feature line and far rounder proportions than both the original slab-sided X3 and X5, the F25 feels like it matches the latter for interior space, with plenty of elbow and rear legroom, plus acres of headroom and class-leading cargo space made even more flexible via a 40/20/40-split folding rear bench seat.

Interior design and material quality is also a vast step up from the E83, with super-soft-touch dashboard and door surfaces now in line with the X3’s positioning between the classy X1 and highly sophisticated X5, although there was an intermittent dash squeak and driver’s window rattle, as well as a degree of A-pillar wind noise above 110km/h in the vehicle we drove.

The MkII X3 borrows a host of technologies from BMW’s latest F-series models including the F01/02 7 Series, F10 5 Series sedan and F07 5 Series GT (and presumably the F20 3 Series, F30 1 Series and F50 5 Series to come), but many don’t come cheap.

Throw in the 19-inch alloys ($1900), Professional navigation ($3500), panoramic glass sunroof ($3000) head-up display ($2300), bi-Xenon headlights ($1450), headlight washers ($750) and internet function ($200), and the X3 28i we drove carries a sticker price that’s well into entry-level X5 territory.

Still, unlike the competition, all X3s come standard with a reversing camera, USB and Bluetooth connectivity, climate-control, trip computer, multi-function steering wheel and the full gamut of safety equipment.

‘Our’ X3 didn’t score the unique-in-class Dynamic Damper Control system ($1900) but was fitted with Performance Control, a $400 option that electronically distributes torque across the rear axle, as well as Variable Sport Steering, a $600 option that brings a more sporting tune to the electric power steering system.

The latter – a first for a BMW SUV – is light-years ahead of the elastic, artificial feeling electric steering system first seen on the Z4, but still doesn’t feel as natural or communicative as the hydraulic steering systems for which BMW is famous.

It’s lighter than the outgoing X3’s steering at low speeds, offering plenty of straight-line stability on the highway and super-responsive to changes of direction, but lacks the consistent weighting and feedback of other BMWs.

Without the Variable Sport Steering option, the X3 20d we drove felt better in both regards, but brought with it a level of steering rack rattle and kickback over mid-corner road corrugations that was absent in the 28i.

Despite that, we’d save the $600 and go for the standard electric steering system’s more planted, natural feel, which combined with the X3’s rear-biased all-wheel drive system, makes it more rewarding to drive than the Q5.

Though its four-cylinder diesel engine was louder than the petrol six of the 28i both inside and out – as well as emitting more clatter than the X5’s diesel six – the 20d is by far the pick of the two.

Its rev range is only slightly more than half that of the 28i, but with 380 of Sir Isaac Newton’s finest available between 1750 and 2750rpm, it never needs more than 3000rpm to deliver swift, seamless acceleration from any speed.

The X3 20d feels every bit as quick as BMW claims (0-100 in 8.5, making it just 1.6 seconds slower than the 28i and 2.3 tardier than the 30d) and – not that it matters – offers a similar 210km/h top speed, but officially returns citycar-like fuel consumption of just 5.6L/100km.

Again, we saw nowhere near that, but even at 7.4L/100km the 20d we drove delivered an outstanding performance/economy equation.

Like the 28i, the 20d on test was also fitted with optional 19-inch alloys, which would undoubtedly have sharpened turn-in response at the expense of ride comfort compared to the 20d’s standard 17s and the 28’s standard 18s.

Both vehicles bottomed out over sharp-edged gravel-road potholes with an horrific thud and delivered lumpy low-speed ride quality on coarse-chip bitumen, but overall the new X3 chassis feels as super-stiff and sits as flat in corners as its forebear and other BMW SUVs, while offering a level of suspension compliancy the old X3 never had.

No, the new X3 20d no longer scores leather trim as standard, but the black ‘Sensatec’ upholstery fitted to our car looks so much like real cow hide that few people will notice.

Moreover, with an unchanged $62,200 entry price, more performance and efficiency than its nearest rival and more space, luxury, technology and style than its predecessor, the new X3 is a relative bargain that should hit the sweet spot in a growing luxury SUV market.

Given BMW’s newest SUV has more in common with the first X5 than the first X3 and the MkII X5 is now really only differentiated by two extra seats in a slightly bigger body, we see no reason why the F25 shouldn’t go straight back to the top of its class – and perhaps even challenge the X5 for outright luxury SUV sales dominance.