YOU really don’t have to go for a big, bulky car if you are looking for four-wheel-drive capability.

Gas-guzzling behemoths can chuck out more CO2 than a small country, and can seem impossible to park in tight bays. They can also be frustrating to drive around town because of their girth.

Thank goodness for Fiat, and it’s cute Panda 4x4.

It’s a simple combination but one that’s rarely been bettered since the first, angular Panda 4x4 appeared in 1983. History repeated itself in 2005 with the second-generation Panda, and now we have a third-generation model, boasting more space, greater refinement and the option of that all-wheel drive system.

The addition of four-wheel drive gives the little Panda a tough new image. It’s no longer the car for just popping down the shops. Now it can meet the challenge of traversing a muddy field or snow-covered country lane.

To go with the car’s new-found abilities, Fiat engineers have blessed the Panda 4x4 with a chunky appearance and underside protection and increased the ride height and ground clearance. It’s not a move that will have Land Rover losing sleep, but it does much to boost the car’s real-world abilities when the going gets tough or, indeed, slippery.

The car remains in front-wheel drive until it detects a loss of traction, when power is diverted rearward in the blink of an eye. This, combined with the aforementioned raised ride height and a low weight, make it more than a match for challenging conditions.

No, it won’t plough through footdeep snow, or wade through water levels that a Range Rover might lap up, but it will feel just as at home on snow and ice as a lot of larger SUVs because of its weight, combined with the 4x4 system.

Buyers can choose between an 89bhp TwinAir petrol motor and a 74bhp diesel unit. For urbanites the petrol motor – tested here – is more responsive in stop-start city traffic, but diesel power will win if you are seeking a more relaxed cruise.

You might find the two-cylinder petrol offering has to try too hard from a standstill, with an annoyingly vocal soundtrack. The raucous TwinAir offering might make an excellent partner for the cheeky Fiat 500, but here it often sounds like it is having to try too hard.

I wouldn’t normally recommend a diesel engine in a small car, but this is no ordinary small car. I suspect that the the diesel will be worth spending the extra £1,000 because of its better flexibility and better fuel economy.

As you’d expect, there’s a little more wind and tyre noise over the two-wheel drive Panda, but that’s likely down to the 4x4 model’s taller stance and special all-weather tyres.

Overall it’s a small price to pay for such a capable car. And when the asking price is also small relative to what the car will do, such niggles are minor.

Inside, the Panda 4x4 is virtually the same as the regular version, which was given a new look last year.

The outdated square features were rounded off and higher-quality materials were employed.

Fiat also increased the length of the Panda by 109mm, gave it 6cm more width and raised the height by 11mm.

You can see clearly the family resemblance to the 500, but the Panda has not gone “full circle” in adopting the new family look.

Instead, it employs “squircle”

design features on the dashboard, instrument panel, seating and even on the wheel arches and side bumpers. These rounded-corner square features soften the look and give the Panda a character all of its own without straying too far from Fiat design cues.

All windows have rounded-off corners, too, but not at the expense of practicality – the side windows have been shaped to maximise outward visibility for added safety.

On board every version of the 4x4 you will find air-conditioning, Blue&Me multimedia system, a CD/MP3 radio, 15-inch alloy wheels, electric heated door mirrors and central locking with remote control.

The optional in-built TomTom2 Live satellite navigation system, which rests on a dashboard mounting, unique handgrip handbrake, embossing of the word Panda into the interior plastics and ample storage spaces, show an attention to detail and convenience that puts other cars in this price bracket to shame.

There’s even a fail-safe fuel filler pipe that prevents you putting in the wrong type of fuel.

Looking through its safety credentials, one cannot be anything other than impressed – even surprised – by the Panda’s armoury.

With up to six airbags, ABS, ESP and anti-whiplash head restraints, it can lay claim to being one of the safest cars in its class. Then comes the punchline... an optional lowspeed collision mitigation system that uses a laser system to detect an obstacle in the road ahead and apply the brakes automatically.

It might just be a little too funky for older drivers used to a more bland interior, but for those looking for a sense of fun with no compromise on economy, comfort and safety, the Panda 4x4 represents excellent value.

Fact file

Fiat Panda 4x4 Twinair

PRICE: £13,950

ENGINE: two-cylinder 875cc petrol developing 85bhp

TRANSMISSION: six-speed manual, driving all four wheels through part-time 4x4 system

PERFORMANCE: top speed 103mph; 0 to 62mph in 12.1 seconds

ECONOMY: 57.6mpg combined

CO2 RATING: 114g/km