The word icon gets thrown about a lot when it comes to cars but one that truly deserves the label is the original 1957 Fiat 500. The tiny rear-engined city car was one of a handful of models that helped bring motoring to the masses and did so with a style that’s still revered to this day.

When Fiat decided to resurrect the 500 name in 2007 it achieved what many people doubted it could and produced something that paid homage to its ancestor while appealing to a modern audience. If the second generation 500 isn’t quite an icon it’s certainly become a massively popular and instantly identifiable mainstay of the city car segment.

So for the third generation and Fiat’s first foray into all-electric cars its engineers and designers faced a challenge of modernising without abandoning a successful formula. As Klaus Busse, head of the Stellantis design studio, puts it: “How do you change the design without changing the design?”

The answer, clearly, is to approach the second-gen styling with something close to reverence. From a distance you’d be hard pressed to tell this new model from the old-style hybrid (which continues to sit alongside it in the range). But once you get close you realise it’s a little chunkier (6cm longer and wider, plus a sliver taller) and a little more modern. The headlights are now bisected by the bonnet line, with an LED hoop built into the clamshell hood. The door handles are fitted flush to enhance the cleaner exterior lines and the Fiat badge in the centre of the grille has been replaced with a bespoke 500 logo. But for all those changes the famous silhouette is still evident and its looks are as cute and appealing as ever.

The bigger platform means more room inside but don’t be fooled into thinking that makes this a big car. It’s still very much a two-seater with a couple of emergency-use seats in the rear and a 185-litre boot, but it does feel more spacious than its predecessor and rear space is on a par with a Mini. Opt for the cabrio version (an extra £2,650) and you’ll have all the headroom in the world as well but the regular sunroof adds light while simultaneously robbing taller drivers of space.

The interior has also been completely redesigned for the new 500 and although it’s a success in its own right it feels like it has lost a little of the previous generation’s character. There’s a more mature, sensible feel to the cabin with an uncluttered dashboard dominated by four gear select buttons and a 10.25-inch touchscreen. There’s a refreshing simplicity and quality to the design, lifted by tiny touches like the cityscape on the wireless charging pad and the “Made in Torino” marks inside the door pulls – reflecting the car’s move back to Fiat’s hometown factory at Mirafiori.

As obvious as these aesthetic changes are, the real difference in the new 500 is in how it gets around. This new car was designed from the start as an EV and Fiat has launched it with a choice of two powertrains. Entry level cars come with a 70kW (94bhp) motor and a 24kWh battery good for 118 miles of range. From Passion spec upwards the 500 is fitted with an 87kW (117bhp) motor and a 42kWh battery. It’s half a second quicker to 62mph with a higher top speed but, most importantly, a WLTP range of 199 miles – the best in its class.

The 500 feels a perfect match for an all-electric drivetrain. The instant response from the motor is ideal for darting between sets of traffic lights and adds to the traditional nimble feel of 500s. It also rides impressively over rough city streets and the steering remains light and quick while the single-pedal driving mode works brilliantly in urban traffic. What’s more, its zero-emissions credentials are perfect for city dwellers worried about pollution and if you’re merely dotting about the urban jungle, range anxiety fades away.

You can, of course, venture onto the open road where the new 500 feels more secure and capable than older models. It will whizz up to motorway speeds easily and feels reasonably refined for a city car but its handling and ride are no match for a Mini on more minor roads and it definitely feels more at home in the city.

The 500 has always carried a bit of a premium over more mundane city cars but, in the realms of EVs, this new model actually feels like pretty good value. Starting at £20,495 for the less powerful Action, it’s among the cheapest EVs on the market and decent finance deals will put one on your driveway for £199 a month. The larger battery/motor package costs from £23,995 after the plug-in grant, undercutting the rival Mini Electric by £2,000 and the Honda e by nearly £5,000 while offering better range than either.

Standard equipment for basic Action cars includes keyless start, air conditioning, auto headlights, lane keep assist and autonomous emergency braking while Passion adds a seven-inch touchscreen, cruise control, fast charging and wireless smartphone mirroring. The predicted best-selling Icon (from £25,495) ups the touchscreen to 10.25 inches and adds 16-inch alloys, passive entry with a wearable key and rain-sensing wipers. Splash out £30k on the pictured La Prima and you’ll get a free home charger along with goodies such as adaptive cruise control, bigger wheels, a better sound system and level two assisted driving technology.

The additional equipment does push the price up but in whatever spec you opt for the new 500 feels like a great choice. It looks as good as ever and is more spacious and better quality than before. But most importantly the electric drivetrain works brilliantly in this neat little city car while outperforming and undercutting its key rivals, making it an ideal choice for style-conscious, eco-minded city dwellers.

£25,495; 87kW single electric; 42kWh; 117bhp; Torque: 162lb ft; Single speed, front wheel drive; 93mph; 9 seconds; 199 miles; 0g/km