The 10 million pound research fund will hold trials in three cities to look into whether road laws need to be reviewed, including the Highway Code and the Road Safety Act. The trials will start in January and will last 18 to 36 months, with deadlines for applications ending October 1.
Business Secretary Vince Cable revealed details of the new plan that will test two kinds of driverless cars: fully autonomous cars without a driver, and those with a qualified driver who could take control at any time.
"Today's announcement will see driverless cars take to our streets in less than six months, putting us at the forefront of this transformational technology and opening up new opportunities for our economy and society," said Cable.
So far, testing on driverless cars has taken place on private roads due to insurance and safety concerns, with engineers and researchers from the University of Oxford and engineering firm Mira leading the way.
In the U.S., California, Nevada and Florida have all approved testing of the vehicles on public roads. In California, Google's driverless car has clocked more than 300,000 miles. In Sweden, the town of Gothenburg has given Volvo permission to test 100 driverless cars, although it's not scheduled to begin before 2017.
Google has lead the way in developing autonomous technology for cars and plans to manufacture 100 of the vehicles. They are also working with other car makers, including Toyota, Audi and Lexus, to develop more cars. Google's competitor in China, Baidu, said it is setting up research labs to work on a driverless vehicle project, although it is in the "early stage of development."
BMW, Mercedes-Benz, Nissan and General Motors are also developing their own technology for autonomous vehicles.