The UK government plans to put driverless cars on public roads as early as January 2015, joining the US, Japan, Singapore, Sweden and Germany in tests to see how the vehicles will work on a large scale.
The vehicles are guided by a system of sensors and cameras, and the trials will last between 18 and 36 months.
UK cities can now bid to host the trials, with up to three cities being selected.
Business secretary Vince Cable said: “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.”
A £10m fund has been created to cover their costs, with the sum to be divided between the three winners.
Meanwhile, civil servants have been given until the end of this year to publish a review of road regulations.
This will cover the need for self-drive vehicles to comply with safety and traffic laws, and involve changes to the Highway Code, which applies to England, Scotland and Wales.
A number of organisations are working on versions of automated cars, including Google, which has put its autonomous driving technology in cars built by other companies, including Toyota, Audi and Lexus.
Other major manufacturers, including BMW, Mercedes-Benz, Nissan and General Motors, are developing their own models.
Most recently, the Chinese search engine Baidu also declared an interest, saying its research labs were at an “early stage of development” on a driverless car project.
The British Army already uses autonomous vehicles, supplied by automotive design specialist MIRA, which is also developing systems for civilian use. Meanwhile, researchers in Oxford have also developed an autonomous car that can be controlled using an iPad.
Transport Minister Claire Perry said: “Driverless cars have huge potential to transform the UK’s transport network. They could improve safety, reduce congestion and lower emissions, particularly CO2.”
But motoring groups say they are sceptical about the move.
AA president Edmund King said: “Many drivers are still resistant to change as 65% enjoy driving too much to ever want the vehicle to take over from them.”
Meanwhile the RAC said: “We suspect it will be difficult for people to come to terms with giving up control of their vehicle to a computer.”
Watch this video demonstrating Google’s latest driverless car prototype here: