Supermarket group Tesco has unveiled record annual profits for a British retailer, despite a challenging retail environment.

Tesco, the UK's largest supermarket chain, said full-year underlying profit reached £2.25bn, up 17 per cent on the previous year.

The company reported an overall turnover of £41.8bn - an increase of 13 per cent on 2005.

International sales increased by 23 per cent to £9.3bn - while core UK sales jumped 10.7 per cent to £32.7bn.

Like-for-like UK sales - which exclude new store openings - increased 7.5 per cent.

Non-food sales in the UK were up 13 per cent to £6.78bn, including growth in clothing sales by 16 per cent.

There was also good news for Tesco Telecom as customer numbers exceeded 1.5 million.

The firm's online business has also continued to grow. Tesco.com saw sales grow by 31.9 per cent to almost £1bn, with profits up 54.9 per cent to £56.2m.

However, Tesco Personal Finance profit fell from £202m to £139m, with Tesco's share dropping 1.4 per cent to £70m.

Tesco boss Terry Leahy said the results represented "good progress in a more challenging year".

"By investing to improve the shopping experience for customers in our businesses around the world, we have been able to deliver another strong sales performance, manage the impact of higher oil-related and other external costs and improve returns for shareholders," he added.

The company said it plans to create over 20,000 new jobs worldwide this year.

Tesco, which operates more than 2,300 stores in 13 countries, will also setup a new £100m capital fund to invest in environmental technology.

Shares in the supermarket giant closed last night at 326.75p.