Smaller Tesco stores are battling for the convenience market

The group said pre-tax profits had surged 17.6% for the year to 28 February, in line with expectations.

UK sales jumped 16.3% to �26.9bn, while sales at its overseas business - which makes up one-third of its operations - jumped 29% to �6.7bn.

Chief Sir Terry Leahy said the figures "demonstrate what a great British success Tesco is at home and abroad".

The UK's market leader added that its non-food sales were rapidly catching up with its food sales - helping to lift profits further.

Non-food lift

The group added that it is now selling more baby goods than Boots and Mothercare combined, while its Cherokee and Florence and Fred clothing lines were helping it to achieve "the fastest growing clothing offer in the UK".

At least one in every eight pounds spent with a UK retailer now ends up in Sir Terry's coffers Profile: Tesco chief Sir Terry Leahy

The figures, which cover 53 weeks to February 28, include like-for-like sales growth of 6.7% in the UK - a performance described by Tesco as one of its strongest in recent times.

The news showed the firm, which dominates the UK with a 27% share of the grocery market, was able to maintain its lead despite a price war among UK supermarkets.

In recent weeks the group has announced two rounds of price cuts totalling �140m. The move was sparked by the recent Morrisons takeover of Safeway.

A share issue, which raised �1.4bn, earlier in the year has given it the financial firepower to make the cuts - and invest in acquisitions.

Tesco also announced plans to create 20,000 jobs worldwide in the current financial year to maintain its strong position.

UK rivals have struggled to match Tesco's strong performance.

Sainsbury's in particular has lost out, being beaten by Asda and Morrisons on prices, by Waitrose and Marks & Spencer on quality and by Tesco on both.

Safeway failed to survive as an independent force and M&S recently admitted that food sales - previously supporting a poor performance in clothing - were now dropping too.

�2bn target

Elsewhere, Tesco's online business continued to grow, with profits more than doubling from �12m last year to �28m this year.

See Tesco's latest share price

Tesco.com now delivers to more than 120,000 customers a week, racking up sales of �577m.

Meanwhile, news that the group's Tesco Express outlets have increased their market share to 5.9% was further bad news for local and corner shop owners who claim that smaller supermarket outlets are pushing them out of business.

Tesco now has 277 such stores around the UK.

The group also said its personal finance arm had had an "exceptional year", delivering a profit of �160m.

Analysts now expect the group's annual profits to have broken the �2bn mark in two years' time.