Car production rose 3.1% in 2013 to surpass 1.5 million units, the highest volume since 2007, according to the Society of Motor Manufacturers and Traders.
Industry analysts predic output to reach record levels of around two million units by 2017, which means the UK could become the third largest car manufacturer in Europe.
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.
"It also highlights the benefits of industry and government working together and we want to continue this partnership through a long-term strategy. This will give businesses the confidence to invest, speed up development on vehicles of the future and keep the UK as a world leader in cars. Our investment of £1bn jointly with industry will help do this, while also delivering jobs and driving growth."
Since 2009, the variety of cars produced in the UK has been underlined by a marked change in export destinations. While the European market has struggled with tough economic conditions, overall export volumes have been bolstered by strong growth in demand for UK-built cars in other locations.
China’s share of exports has grown rapidly over recent years, and the country now looks set to become the largest non-EU market for UK-built cars. Take-up in the United States remained strong last year, and while Russia has seen volumes fall since 2012, it is now firmly established as a key export destination.