New UK car registrations rose more than 5% in 2012, an increase that has taken the annual volume to its highest level since 2008.
More than two million vehicles were registered, which is the largest recorded increase since 2001.
The Society of Motor Manufacturers and Traders (SMMT) said growth of 5.3% in 2012 was led by private demand and not fleet buyers.
The statistics have been welcomed by the industry, which has suffered as a result of the global financial crisis.
However the new car market is still 14.9% below the pre-recession 2007 level, when 2.4 million vehicles were registered with the DVLA .
SMMT chief executive Paul 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.
Private vehicle registrations rose 12.9% to 106,346, with incentives and buying patterns shifting away from used vehicles as possible reasons for the upturn.
Smaller cars and so-called dual purpose vehicles saw the biggest growth.
The Mini sector rose 54%, Superminis were up 5.6% and dual purpose climbed 21.1%.
"It's terrific news for everyone involved in the UK car industry that we have moved back above two million new car registrations," What Car? editor in chief Chas Hallett told Sky News.
"Of course, this is still lower than the best years - but it's a real sign that consumer confidence is bouncing back.
UK-built cars saw a volume rise of 11.1% in 2012, taking British manufactured market share to 13.5%.
It appears that the higher per litre cost of diesel has dampened desire for what was once an alternative to petrol-engined cars - diesel vehicle sales only rose by 0.2% to 50.8%.
Meanwhile, registrations of alternatively-fuelled vehicles rose 9.4%, achieving a new high of 1.4%.
The Ford Fiesta remained the best-selling car in Britain during 2012, the title it has held since 2009.
Mr Hallett from What Car? added: "We should also remember other successes in the UK manufacturing industry.
"Companies such as Land Rover, Nissan and Toyota are now also producing hundreds of thousands of cars which are being exported to all corners of the globe."