Linklaters capped an extraordinary year for the City's leading law firms yesterday by announcing a record turnover of £1.2 billion, but failed to overtake Clifford Chance as the world's largest firm.

Spurred by its involvement in some of the biggest deals of the past year, including BHP's proposed takeover of Rio Tinto and the €80 billion acquisition of ABN Amro by the Royal Bank of Scotland, Linklaters increased fee income by 15 per cent in 2007-08.

The firm's performance matched similarly impressive increases at its three main rivals.

Allen & Overy announced a revenue increase of 15 per cent to £1.02 billion on Thursday - which means that for the first time the UK's four biggest firms each generated fee income in excess of £1 billion.

Last month, Clifford Chance revealed revenue of £1.33 billion, up 13 per cent, while Freshfields Bruckhaus Deringer achieved £1.17 billion, up 19 per cent.

Although Linklaters was second to Clifford Chance in turnover it stayed narrowly ahead of Freshfields, its closest rival, in profitability.

Profit per equity partner was £1.441 million, ahead of £1.439 million at Freshfields. Slaughter and May, which does not release its figures, is believed to be the richest firm per head in the City.

Simon Davies, the managing partner of Linklaters, admitted that corporate advisory work - the firm's traditional strength - had declined in the second half of the year as a result of the credit crunch, but said that the firm's push into emerging markets had compensated for that.

He said: “We saw good growth in Asia, particularly China and India, and emerging markets in Europe such as Russia were very strong. The Middle East is also a very hot market at the moment.”

Mr Davies said that the performance of all of the four biggest firms validated their aggressive global expansion in recent years. It also confirmed the emergence of the City as the centre of the global legal services market, with four of the six largest firms now based in London. The two others, Latham & Watkins and Skadden, are based in the US.

Mr Davies said that the downturn would lead to a flight to quality that would result in the big four firms increasing their lead over their City rivals.

A decade ago, several firms told of their desire to unseat the so-called magic circle but the gap now appears to be insurmountable. Lovells, the next-largest City firm after Allen & Overy, reported revenue of £479 million, less than half A&O's figure.

City firms enjoyed a record year across the board with most of the top 50 increasing turnover by between 10 per cent and 30 per cent. However, most observers agree that the boom is over.

Law firms are typically among the last to feel the effect of an economic downturn. Some firms have announced redundancies, with Howard Kennedy last month saying it would cut 50 jobs, mostly from its real estate practice.

Mr Davies said he could not predict how Linklaters would perform over the coming year, although he admitted it was a “challenging market”.

Linklaters results were announced as the firm said that it would fight a £23 million negligence claim by a former client.

Levicom, a Baltic telecoms group, accused the firm of giving bad advice that resulted in the company settling a dispute with a Swedish rival on unfavourable terms.

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