Production increased by 3.1% in 2013, with analysts predicting that output would reach record levels of around two million by 2017

The Society of Motor Manufacturers and Traders (SMMT) said the UK was set to become the third largest car manufacturer in Europe after Germany and Spain.

Four out of five cars built in the UK last year were exported, with strong demand reported in China, the United States and Russia.

Mike Hawes, SMMT chief executive, said: "2013 demonstrated the value of the UK's diverse car manufacturing industry, as surging home demand and robust exports outside Europe saw output grow 3.1% to over 1.5 million units.

"UK automotive investment announcements exceeded £2.5 billion in 2013, reinforcing industry analysts' suggestions that the UK could break all-time car output records within the next four years."

Business Secretary Vince Cable said: "Today's figures are another sign that the British car industry is going from strength to strength, with one vehicle rolling off a production line somewhere in the UK every 20 seconds.

"Our success lies in the appetite from countries around the world for British cars.

"Around 80% of the 1.5 million cars we produced last year were exported - a testament to the diverse, high quality of British manufacturing.

Nissan built the most cars - over half a million - at its plant in Sunderland last year, followed by Land Rover (340,000), Toyota (179,000), Mini (174,000), Honda (138,000), Jaguar (78,000) and Vauxhall (73,000).