"In general, there seem to be no corners of the world that are not convinced of Sydney's attractions," the index report says.
In the three years that the Anholt City Brands Index has been produced, Sydney has been in the top three with London and Paris. Sydney was third in 2005 and took first place in 2006.
The survey that forms the basis of the index, How the World Views its Cities, was conducted in December 2007 in 20 countries.
There were about 500 respondents in each country – 10,306 respondents in total who were questioned about 40 cities. Respondents provided their impressions built up from other sources, even if they had not visited Sydney.
Sydney's world ranking can be largely attributed to the Sydney 2000 Olympics where the city established its presence on the world stage.
Asian countries recognised Sydney's presence the most. The Sydney Opera House, the 2000 Olympics and the Harbour Bridge were strongly associated with the city.
The report also notes the consensus about Sydney's economic potential – what cities can offer people economically, including investment in their future through education.
Sydney was ranked second for jobs and business by the Chinese respondents – behind Singapore and Hong Kong respectively.
Sydney performed best in the dimensions of "place" and "people", taking top position.
Sydney was recognised as one of the most culturally diverse cities in the world.
"Place" covers the physical aspect of each city: how pleasant or unpleasant people imagine it is to be outdoors and to travel around the city, how attractive it is, and what the climate is like.
According to the survey report, "Sydney's waterfront, with its iconic – though not necessarily historic – buildings, is undoubtedly its principal asset in this context."
"People" addresses friendliness, issues of common language and culture, and safety. Sydney's top position indicates that the city was seen as welcoming and relatively safe, while being diverse enough to contain communities that most people could identify with.
Sydney also took top place for the questions on climate, public amenities and welcome.
The naming of Sydney as the world's favourite city brand is the latest recognition of the city.
In 2007, Sydney was voted number one city in the world at the US Condé Nast Traveler Magazine Readers' Choice Awards for a record 12th time. UK Condé Nast Traveller Readers Travel Awards voted Sydney best city in the world.
The Sydney Opera House was awarded World Heritage Status last year.