Key to the achievement is an all-new D4 engine. This four-cylinder bi-turbo diesel offers a 320d-rivalling 178bhp and 295lb ft of torque, combined with startlingly low CO2 emissions of 99g/km in the manual S60, or 102g/km in the V60.
A new eight-speed automatic gearbox is another welcome addition, although this does raise emissions by 9g/km, whereas auto versions of the 3 Series are no dirtier than the manuals.
The figures for the D4 are currently preliminary, but they should be confirmed in the coming weeks.
What’s the 2013 Volvo V60 D4 like to drive?
We tried the automatic version of the V60 D4, and in this the new engine really impresses.
It has two turbos, one small and one large, which work sequentially and keep the delivery of power pretty even. By contrast, the previous D4 felt very flat at low revs, before delivering a sudden surge when its single turbo kicked in.
The new engine pulls strongly, while the auto gearbox delivers near-imperceptible upshifts.
It can be a touch sharp on kickdown, but it generally picks its ratios well, even over taxing, hilly roads.
Wheel-mounted paddle-shifters are available for £150, and although they’re too small and clicky to be satisfying to use, they do allow you to hold a gear all the way through to the extremities of the rev range should you really feel the need.
However, while the engine’s performance and efficiency are beyond doubt, it isn't the most refined diesel out there, particularly if you stray beyond 2000rpm.
Elsewhere, the smoother power delivery combines with some clever electronics to improve traction, so you can accelerate hard out of corners without the tyres scrabbling or the steering wheel writhing.
Unfortunately, the steering remains vague and the whole car feels like it has been set-up for lazy cruising. It falls a long way short of the sharp, precise responses of the BMW 3 Series or Audi A3 Saloon.
Not only that, but the ride on the optional 18-inch alloys of our test car was not what you’d want of a comfort-oriented family wagon. Even small bumps in the road thunk sharply through the cabin, although body movement is kept to a minimum.
What’s the 2013 Volvo V60 D4 like inside?
You can now add the digital instrument display from the smaller V40 (for £350), which lets you choose from several colour schemes.
What’s more, there are new sports seats that combine good lateral support with lots of adjustment, so anyone should be able to find a comfortable driving position.
Otherwise, the practicality of the V60 is unchanged, so there’s reasonable space for adults in the back, and a 40/20/40 split rear bench that drops totally flat. However, the boot is quite small at just 430 litres; the Audi A4 Avant, BMW 3 Series Touring and Mercedes C-Class Estate can all carry more.
Standard equipment includes rear parking sensors, a colour infotainment screen, DAB radio, Bluetooth, a USB input and climate and cruise controls.
Should I buy one?
We can’t yet comment on how good the manual D4 is, and it might well be the pick of the range given that this is where the really outstanding emissions and company car tax rates are.
However, what we can tell you is that the new D4 diesel is a great engine, which is just as well given that, in varying outputs, it will replace all Volvo’s diesels across the UK range within two years.
Still, as good as its engine is, the V60 is let down by the fact it isn't as practical, comfortable or good to drive as the rival 3 Series Touring.
It’s a big step forward for Volvo, but it’s not the benchmark in the class.
What Car? says...
Specification V60 D4 automatic
Engine size 2.0-litre bi-turbo diesel
Price from £31,000 (est)
Torque 295lb ft
0-62mph 7.6 seconds
Top speed 140mph
Fuel economy 67.2mpg
CO2 emissions 111g/km