More than two million new cars were sold in the UK last year, an increase of 5.3 per cent on 2011 and the highest since 2008.
The increase was the biggest since 2001, with sales of new vehicles boosted by strong consumer demand, said the Society of Motor Manufacturers and Traders (SMMT).
Sales of new cars reached 2,044,609 over the year, with a 3.7 per cent increase in December alone compared with the same month in 2011.
SMMT chief executive Paul Everitt said the new car market grew last year at the fastest rate for more than a decade, driven by innovative, fuel-efficient models.
The Ford Fiesta was the best-selling car of 2012, with more than 109,000 models being bought, followed by the Vauxhall Corsa (89,434), Ford Focus (83,115) and Vauxhall Astra (63,023).
Last year's healthy sales figures followed a 12.9 per cent increase in private demand for new cars.
Despite the strong performance of the motor industry, the new car market was 14.9 per cent below the pre-recession level of 2.4 million sales in 2007.
"More than two million new cars were registered in the UK during 2012, up 5.3 per cent on the previous 12 months and the best result since recession struck in 2008," Everitt said. "Boosted by strong consumer demand, the market grew at its fastest rate for 11 years with innovative, fuel-efficient cars keeping buyers in showrooms.
"Looking ahead to 2013, we anticipate the market will hold firm, with manufacturers and dealers working hard to deliver quality and value to motorists."
Diesel cars took a record 50.8 per cent market share, with sales of just over a million compared with 978,000 petrol vehicles.
Sales of alternative fuel vehicles, such as electric, increased by 9.4 per cent to almost 28,000, a market share of 1.4 per cent, a new high.
Private sales of new cars increased from 823,000 to 929,000, fleet sales increased by 0.6 per cent to just over a million, while business sales fell by 9.5 per cent to just under 90,000.
The SMMT said 2013 would be "challenging", but it expects performance to be on a par with 2012.
The Fiesta has been the best-selling model since 2009, although the Focus topped the list for December alone.
The top 10 best-sellers for 2012 were the Fiesta, Corsa, Focus, Astra, VW Golf (62,021), Nissan Qashqai (45,675), BMW 3 Series (44,521), VW Polo (41,901), Mercedes C-Class (37,261) and BMW 1 Series (34,488).
Richard Lowe, head of retail and wholesale at Barclays, commented: "As we look to the year ahead the real question is whether this demand will hold.
"Consumer pockets will continue to be squeezed, and with pre-registration figures increasingly accounting for a larger percentage of the market, both manufacturers and dealers will have to be careful that supply does not outstrip demand."