The Department for Transport predicted a "decline in network performance" once one in four cars become driverless.
However, should driverless vehicles make up between 50% and 75% of cars, DfT researchers say they will reduce congestion.
The average time spent delayed on city roads at rush hour will fall by 12.4% when 25% of vehicles are driverless.
The DfT said early models of the vehicles acted more cautiously and the result could be a "potential decrease in effective capacity" on motorways and A roads.
But as more people adopted the technology and it became common place on the country's road network, the study found that congestion could be cut by 40%.
Steve Gooding, director of motoring research charity the RAC Foundation, said: "There's a prize to be had in terms of swifter, safer journeys, but the transition to that world will be challenging.
"There are around 32 million conventional cars on the UK's roads - as driverless cars come in, traffic flow could initially get worse rather than better, potentially for many years.
"Much will depend on how an autonomous car's parameters are set and just how defensively these vehicles will be programmed to drive."
The study used software to map out the effects of the cars on the road network.
The DfT said the report was the first step into more trials and researching, ensuring driverless cares are "safe and beneficial for all".
Transport minister John Hayes said: "This exciting and extensive study shows that driverless cars could vastly improve the flow of traffic in our towns and cities, offering huge benefits to motorists including reduced delays and more reliable journey times."
Ministers are also planning to extend existing insurance cover to driverless vehicles, covering individuals when they are driving and when they have handed over control to the computer.
In the event of a crash caused by the technology, a government consultation document suggests the driver and anyone else affected should be able to claim from the insurer and, in turn, the insurer would be able to claim compensation from the manufacturer.
In the document, the government adds it will incorporate the insurance proposals for automated vehicles forward into the Modern Transport Bill, which is expected to be debated by MPs later this year.

A well-known reporter who was sacked from a long-standing job at the liberal Hurriyet newspaper last year, Mr Mumay says the news was a shock.
"It's difficult to be facing such accusations," he told the BBC, "but I wasn't surprised."
Mr Mumay described Turkey's record on press freedom as "troubled".
The country ranked 151 out of 180 in media watchdog Reporters Without Borders' 2016 World Press Freedom Index.
Mr Mumay said he had several journalist friends who had been arrested in recent years.
"I am just a person who practises journalism and describes himself as a critic," he said. "So I am one of those they point the finger at and accuse of being part of the group who planned the coup."
Mr Mumay called on the authorities to look at his social media accounts which would show that he had taken a stand against the coup from the moment he first heard military jets flying overhead.
"Just look on Twitter and you will find several tweets from me strictly rejecting any kind of military coup," he said.
Another name on the list is Fatih Yagmur, an investigative journalist sacked from another liberal daily, Radikal, after writing a story alleging the Turkish government was arming militants in Syria.
In a defiant message on Twitter on Monday, he said that he had no intention of handing himself in to prosecutors, having witnessed torture in Turkish police stations.
Many of the journalists named on the prosecutor's list only found out they were facing arrest when their names were published by the state news agency.
So far only five have been detained, in dawn raids on Monday.
Driverless cars could initially lead to longer delays on the UK's major roads, according to a government report.
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Bulent Mumay found out he was on a list of 42 journalists facing arrest when a friend called him on Monday morning.