The most powerful, most capable – and most desirable – variant of Audi’s latest A3 has finally been granted the production green light by the German car maker’s chairman, Martin Winterkorn.

Set to receive RS3 badges, Ingolstadt’s new 350bhp rocket will bypass the traditional hot-hatch brigade and land directly in the territory occupied today by the Subaru Impreza WRX, at last providing Europe with a worthy rival to the iconic rally-bred Japanese saloon.

Engineers at Audi’s Sport division – the same team responsible for the ’Bahn-storming RS4 and RS6 – have already started developing the new car, which is planned to reach the UK by mid-2006 in hatchback and Sportback estate bodystyles, as previewed by our exclusive images.

But before the new £35,000 über-hatch lands here, Audi plans to unleash a milder S3 model running a naturally aspirated 280bhp version of the same 3.2-litre V6. Aimed at cars like the Ford Focus RS, Alfa Romeo 147 GTA and Volkswagen Golf R32, it will arrive in 2005 priced around £26,000, according to well-placed Audi sources.

Yet while the S3’s launch is eagerly anticipated on these shores, it is the more aggressive RS3 that will make the bigger headlines. With a state-of-the-art turbocharged powerplant and an advanced four-wheel drive system capable of constantly varying the drive to each axle, it promises to deliver supercar-slaying performance for the price of a well-kitted executive car.

Recent hot Audi models have been big on stealth, with little more than a handful of styling modifications hinting at the huge performance that lies beneath. The RS3 continues this tradition with an inherently muscular but hardly flamboyant appearance that’s dominated by Audi’s imposing new shield grille positioned up front, as seen on the recently introduced A6 and A8 W12. It will quickly become a trademark of all Audi models.

Among the changes over the standard A3 are a deep spoiler with a trio of large air ducts, more heavily flared wheelarches, wider side sills under the doors, an additional spoiler atop the rear hatch and an extended rear bumper that’s designed to draw air more cleanly from underneath.

Insiders say that these styling modifications – whose aerodynamic characteristics have been carefully honed in Audi’s own wind tunnel – might be subtle, but they all serve a particular purpose, rather than merely enhancing the looks.

These purposeful looks are backed up by the sort of firepower rarely seen in the hatchback ranks. Under the RS3’s bonnet lurks a heavily refettled version of the Volkswagen Group’s 24-valve 3.2-litre V6, as used in today’s top-of-the-range A3.

Mounted transversely, the compact 15-degree unit has been upgraded with the inclusion of Audi’s advanced FSI (fuel stratified injection) direct-injection tech and, in keeping with earlier models to wear the illustrious RS badge, it is also turbocharged.

The result is an appreciable 100bhp jump over the output of today’s 3.2-litre V6, highly placed Audi sources confirm. They hint the upcoming RS3 is likely to serve a tantalising 350bhp in final production trim. With a target weight of 1560kg, this means a power-to-weight ratio close to 225bhp per tonne – an impressive 30bhp per tonne more than Subaru claims for the Japanese-spec Impreza WRX STi. Torque should also be prodigious, swelling from an already impressive 250lb ft to more than 335lb ft.

It won’t only be the engine that places the RS3 at the top of enthusiasts’ shopping lists. In keeping with recent fast Audis, the new car will adopt a six-speed DSG dual-clutch gearbox with a paddle nudge-shift manual over-ride.

Drive is channeled through an electronically controlled multi-plate Haldex clutch. It apportions power to all four wheels, continuously alternating the split from zero to 100 per cent for optimum traction regardless of the conditions.

With the advanced driveline dishing up such high levels of traction, acceleration should be at least as good as that of the giant-killing Impreza WRX. It’s still too early for final figures, but an Autocar engineering source privy to early technical data revealed the RS3 will receive a 3.6:1 final drive ratio and should run 0-60mph in under 5.0sec – almost 2.0sec faster than today’s fastest A3.

Top speed will be limited to 155mph, like all of Audi’s high-end models. Without the restrictor, the true figure is said to be closer to 170mph.

Forming the basis of the RS3 is a reworked version of the Volkswagen Group’s versatile PQ35 Golf chassis. Suspension geometry remains the same as lesser A3 models, but engineers have introduced new levels of tautness to the MacPherson strut (front) and multi-link (rear) suspension.

The changes are predictable and in line with recent hot Audi models: stiffer springs and dampers, less compliant bushes, beefed up anti-roll bars, reduced ride height and widened tracks. Underneath the flared wheelarches lurk purposeful 235/40 profile tyres on 18-inch alloys.

The A3’s electrically assisted power steering will be carried over without any significant changes, but the brakes will be heavily upgraded with a similar disc and caliper pairing as that seen on the discontinued RS4, according to Autocar sources.

Inside, the RS3 will pamper its occupants with a high level of luxury by traditional fast hatchback standards. Among the items prospective buyers can expect are heavily contoured Recaro sports seats offering a higher level of lateral support than standard A3 pews, alongside typical RS elements such as unique instrument graphics and subtle changes in the dashboard trim.

Our artist’s impressions show a three-door RS3 hatchback, but this summer’s new five-door Sportback estate will also come in hot RS3 form (right). The Sportback range will be unveiled this summer and go on sale in the autumn. It’s designed more as a lifestyle estate than an out-and-out load lugger. However, with a boot of around 400 litres, it offers an extra 50 litres of space compared to the hatchback. It shares a wheelbase with the three-door, but adds an extra 100mm in the rear overhang.

The S3 hot hatch will be assembled at Audi’s sprawling Ingolstadt headquarters, while the more potent RS3 will be built at the firm’s increasingly active Sport division base in Neckarsulm – the same facility responsible for the assembly of the RS4 and RS6 and a limited run of Lamborghini Gallardos.

Production volumes aren’t yet decided, but it appears that Audi’s earlier strategy of restricting RS numbers will be dropped for higher volumes – and therefore higher profits.