Jaguar's "radical" replacement for the S-type will be unveiled next year – with the success of the car described as crucial to the carmaker's future.

The Jaguar XF will go head to head with the Audi A6, BMW 5 Series and Mercedes E class in the premium mid–size saloon segment.

It is undergoing final trials in America and is expected to make its first public appearance at the Frankfurt Motor Show in September.

The car, codenamed X250, will go on sale early in 2008 with a price tag estimated at around #35,000.

Diesel, supercharged and petrol versions of the XF are expected to be launched simultaneously, while some of the top end models could feature gear change pedals as seen on the XK sports car.

Production of the XF is seen as crucial to the future of the Castle Bromwich plant in Birmingham, where the car will be built along with the XK and XJ saloon.

In the year to the end of October, Jaguar has seen sales drop by 16 per cent to 65,000.

The car has been designed by the company's design director Ian Callum, the man behind the XK sports car, and developed at Jaguar's Product Development Centre at Whitley in Coventry.

Bibiana Boerio, managing director of Jaguar Cars, said: "The Jaguar XF is a new sports saloon that will challenge people to think again about Jaguar as daring and different.

"Our new XK sports car has been very well-received and is enjoying great success. We are now moving on to the next stage of Jaguar's exciting new design era."

The car will replace the S-Type, which despite selling 270,000 cars since its launch in 1999, has been criticised for relying too much on historical looks.

A spokesman for Jaguar said the new car would be radically different.

"This is the first sports saloon to be designed by Ian Callum and it will change people's views about Jaguar design.

"We are very respectful of our heritage, but this car will look radically different to what we have produced before.

"It is also a very positive step for Castle Bromwich. The fact that three car production lines are to continue shows the confidence we have in the workforce and the quality levels they are achieving."

Production levels have not been revealed, although they are thought to be about the same as the S-type.

But Jaguar is thought to be positioning the car towards the upper end of the premium mid–size saloon segment as it continues its strategy of higher margins, but lower volumes.

Production of the car, which has been in development for the last three years, will start at the end of 2007.

Peter Cooke, KPMG Professor of Automotive Industry Management at Nottingham Business School, said the XF was a crucial part of Jaguar's repositioning as an aspirational brand.

He said: "Jaguar has a small range of cars, so this new car is very important, but it is also important as it starts to move up-market.

"Jaguar absolutely has to move up into the aspirational bracket and cut out the Mondeo floor plan cars.

"It is also important they are beginning to reveal dates already. This is to encourage existing Jaguar customers to wait. Customers are much less loyal than they used to be.

"Jaguar is going for a value added strategy. They have shown to themselves that mass market car was not working; the Jaguar heritage is a car that everyone aims for."