The Washington-based global watchdog upped its 2014 prediction for Britain from 2.4% growth to 2.9%, putting it ahead of America on 2.8%, Canada 2.3% and Germany on 1.7%.
The IMF's new forecast for this year is higher than the 2.7% predicted by the Office for Budget Responsibility but it is lower than the Bank of England's prediction of 3.4% growth.
The report said UK growth had "rebounded more strongly than anticipated" although the recovery remained unbalanced with business investments and exports remaining disappointing. It also sounded a warning over the risk posed by surging house prices and the threat of deflation in the eurozone.
It said the Bank of England's monetary policy, which has seen interest rates held at 0.5% for four years and £375bn of quantitative easing pumped into the economy, should remain "accommodative".
George Osborne, currently on a trade mission to Brazil, tweeted: "Good news from IMF: UK forecast to grow faster than any other western country + has biggest upgrade."
But he added: "Job is not done. We need to do more to get our exports and investment going."
A Treasury spokesman said the upgraded forecast was "further evidence that the Government's long-term economic plan is working".
But Shadow Chancellor Ed Balls, while welcoming the IMF upgrade, stressed that millions of Britons were still worse off than when the Coalition came to power by an average of £1600 a year and had yet to feel the benefits of economic upturn.
"The IMF is right to warn about an unbalanced recovery and it is concerning that growth is expected to slow down next year," he noted."