Volkswagen is to launch a two-cylinder diesel version of the Up in 2013 as a rival to the Fiat Panda TwinAir.

Speaking at the Sao Paulo motor show, Volkswagen R&D chief Ulrich Hackenberg said the engine would be adapted from the radical Volkswagen XL1, which has also been confirmed for production next year.

He said the two-cylinder engine was compatible with all models in the New Small Family platform, which opens up the possibility of a two-cylinder diesel version of the NSF-based VW Taigun concept when it makes production as expected in 2015.

The current three-cylinder engine from the Up range of cars is also compatible with VW’s larger MQB platform-based cars, said Hackenberg, which opens up the possibility of three-cylinder petrol-powered Golfs in the future.

The three-cylinder engine is of a modular design and closely related to the new four-cylinder engines in the new MQB range, meaning installation would be relatively straightforward in a Golf-sized car.