Solar power is set to become a stronger competitor with fossil fuels thanks to the efforts of Australian researchers who have set a world record for the highest levels of solar-power efficiency ever achieved.

A team from the University of New South Wales has achieved a world-first 40.4 percent conversion efficiency by using standard solar cells combined with a mirror and filters.

This special combination reduces wasted energy and eclipses previous world solar power efficiency records of 36 percent, according to Martin Green, director of the university's Australian Centre for Advanced Photovoltaics (PV).

Green said the team was aiming to raise efficiency levels to 42 percent next year, which is about half way toward the ultimate goal of 86 percent.

"It's horse and buggy days as far as solar is concerned at the moment. There's just this enormous potential for improvement in efficiency," Green told Fairfax Media on Monday.

Green said the world-best efficiency was created by stacking three solar panels in a way that they captured energy from different wave lengths of sunlight. The team then used mirrors and filters to direct excess light to a fourth PV cell to further boost efficiency.