Panasonic’s first two Micro Four Thirds system cameras – last year’s G1 and this spring’s GH1, which added high-def video – based their designs on that of traditional digital SLRs. Even though technically they weren’t, having junked the integral mirror box mechanism in order to bring lens and sensor closer together.

In theory this promised more diminutive camera bodies and lenses, yet in practice neither G1 nor GH1 are much smaller than the latest entry-level DSLRs based around regular APS-C sized sensors.

But that aspect is about to change. As the advertising blurb runs, the new Micro Four Thirds Panasonic Lumix DMC-GF1 is like a DSLR – in that lenses can be changed and image quality is a step up from a bridge camera – only smaller.

Its styling is closer to a compact camera, albeit one that will be a snug fit for even the deep pocket of an overcoat; the busy top plate control layout recalling the look of a high-end rangefinder camera. It is the manufacturer’s answer to, and direct rival of, Olympus’ E-P1, otherwise known as the Pen.

While that camera’s hybrid nature was deemed revolutionary on release, it omitted a couple of fairly crucial features for the photo enthusiast – especially one spending £600 on a body without lens.

Fortunately the similarly solidly built (but fractionally lighter) GF1 has shoehorned in one of its rival’s omissions – a flash of the pop-up variety to maintain the Lumix’s boxy lines – whilst, doubtless partly due again to size, still failing to deliver an optical viewfinder.

However it does offer an electronic viewfinder (EVF) like those incorporated on the G1 and GH1, as an optional extra that clips onto the vacant top plate hotshoe. This costs around £160, compared to £100 for an optional optical viewfinder for the Olympus Pen.

Photos are composed on the GF1 in its absence via the 3-inch, 460k-dot resolution LCD with Live View; double the resolution offered by the E-P1, which in our eyes makes for a much smoother, more life-like display image.

Headline resolution is otherwise nigh on identical, at 12.1 effective megapixels from a 13.1 megapixel LiveMOS sensor, and, like the Pen is basically a concertinaed Olympus E-series DSLR, so the GF1 squeezes the functionality of its G1 and GH1 forebears into a more manageable shape.

This includes a mono HD video mode with a dedicated recording button, and a choice of AVCHD or (more widely compatible) Motion JPEG compression, resolution being the lower 1280 x 720 pixels rather than the Full HD 1920 x 1080. A side mounted HDMI port is also provided for hooking the camera up to an HD TV, though the required cable costs extra.

If you really want the most compact camera solution, then opt for the 20mm non zoom "pancake" lens we had on test, equivalent to 40mm in 35mm terms, which, when bought in conjunction with the Panasonic body, will set you back a not-so-cool £800. We found it works best for shooting portraits and close ups, where a shallow depth of focus, blurring distracting backgrounds, proves a specific aid to creativity.

If we’ve one true criticism it's that the blocky, rectangular GF1 lacks anyway in the way of a decent grip, with only a thin raised strip on the front providing purchase for the fingers when shooting handheld. Still, it’s also possible to use the camera as a gloried point and shoot courtesy of Panasonic’s reliable intelligent Auto (iA) mode, whereby it recognises common scenes and subjects and adjusts settings automatically, saving the user otherwise fiddling around with controls and dials to achieve similar results.

With the GF1 powering up for action with DSLR-approximate swiftness in just over a second, other built-in aids to creativity include its "My Colors" modes that come across as Panasonic’s re-interpretation of the Olympus Pen’s Art Filters. They even include a pop art style "Dynamic Art" option.

We also get film simulation modes "borrowed" from its G1 and GH1 siblings and a Peripheral Defocus Mode that blurs potentially distracting backgrounds – even when you’re not shooting with a 20mm lens. Left on standard default settings colours are rendered beautifully natural and life-like with a crispness few standard fixed lens compacts could match. Impressive stuff – though of course it comes at a price.