The objective of the HumanDrive initiative is to build an autonomous vehicle with human-like, natural control and path planning, by 2020.
It will be fully autonomous and capable of completing a lengthy end-to-end journey in a variety of settings, including country roads.
It will also be designed to mimic the style of a proficient human driver, to provide an enhanced experience for the occupants.
The HumanDrive initiative will first simulate a range of conditions, before the car starts its 200 miles (320km) journey in December 2019, the BBC reported.
But the UK is facing stiff competition from the US and other countries around the world.
Business and Energy Secretary Greg Clark welcomed the project: "Low-carbon and self-driving vehicles are the future and they are going to drive forward a global revolution in mobility.
"Trailblazing projects like the HumanDrive project will play a vital role helping us deliver on that ambition."
The project is a collaboration between Groupe Renault, Nissan and Mitsubishi, Cranfield University and Highways England, among others.
Mark Westwood, chief technology officer of the Transport Systems Catapult, which is another partner involved in the project, said: "UK roads throw up some particular challenges.
"This project is about advancing the state-of-the-art and trying to do something more demanding. The control system will learn to drive like a human."
To enable this, a group of competent human drivers will show off their skills in a simulator based at Leeds University and the data will be collated. Data is also being collected from roads around the UK, the report said.
This data will be fed into the machine learning system and driverless cars will begin safety testing and trials on private tracks, it said.
The division has already carried out 3.5 million miles of other tests on US public roads.
And Uber recently struck a deal to buy 24,000 self- driving cars from Volvo and plans to radically expand its current tests in Arizona and Pennsylvania.
Most car firms, including Toyota, Nissan, BMW and Ford, also have ambitious timelines to get fully autonomous vehicles on the roads by 2020 or 2021, the report said.
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