Sales of new cars rose 2.5% last year to 2.4 million vehicles, driven by the rising popularity of diesel models, said the industry's main trade body.
The SMMT warns that sales will likely fall slightly this year
Diesel cars, which are more economical, now total 40% of all UK car sales, up from 10% in 2000, said the Society of Motor Manufacturers and Traders (SMMT).
Its latest report added that overall new car sales in the final quarter of 2007 were the strongest since 2004.
Yet it cautioned that sales "will drop very slightly" this year.
The SMMT expects annual sales to dip to 2.34 million cars in 2008.
"Last year, demand for new cars was stronger than many had predicted," said Paul Everitt, SMMT chief executive.
UK 2007 BESTSELLERS
1. Ford Focus - 126,928 cars
2. Vauxhall Astra - 113,894
3. Ford Fiesta - 102,872
4. Vauxhall Corsa - 94,120
5. VW Golf - 68,843
6. Peugeot 207 - 67,185
7. BMW 3 Series - 58,544
8. Renault Megane - 55,468
9. Renault Clio - 53,907
10. Vauxhall Vectra - 50,983
"There is little sign that the US credit crisis or rising fuel prices have affected demand and we foresee only limited changes through 2008.
"The UK economy currently remains resilient and the new car market is ultra-competitive."
The continuing rise in the popularity of diesel cars comes after the price of fuel - both diesel and petrol - broke through £1 a litre last year for the first time.
While diesel costs more to buy than petrol - currently an average of 108.6p per litre of diesel compared with 103.6p for unleaded petrol - diesel-powered engines are more economical than their same-sized petrol equivalents.
Ford's Focus remained the UK's best-selling car in 2007, shifting 126,928 units, followed by the Vauxhall Astra (113,894), Ford Fiesta (102,872), Vauxhall Corsa (94,120), and VW Golf (68,843).