The project, funded by the Engineering and Physical Sciences Research Council (EPSRC), will look at the way fibre optics are used, and develop new materials and devices to increase internet bandwidth. This will ensure that the web can cope with more broadband subscribers and the increasing use of services such as internet television and music downloads.
These breakthroughs would also bring improvements to many industries including retail and banking, which would both benefit from faster transaction times.
Announcing the investment during a visit to officially open the University of Southampton's award-winning Mountbatten Building, where much of the research will be conducted, Minister for Universities and Science David Willetts said:
"The internet is fundamental to our lives and we use it for a huge range of activities - from doing the weekly food shop to catching up with friends and family. The number of broadband subscribers has grown vastly in the past ten years, and we need to ensure the web infrastructure can continue to meet this demand.
"On top of this, the internet industry is worth an estimated £100 billion in the UK, so it is in our interest to make it even better for businesses and help boost economic growth.
"The Photonics HyperHighway project has the potential to truly revolutionise the internet, making it much faster and more energy-efficient. The project is also a shining example of the UK's world-leading role in this area of research, and I look forward to the exciting breakthroughs it will bring."
Professor David Payne, of the University of Southampton, who is leading the Photonics HyperHighway project, said:
"Now is the time to look ahead to develop the UK infrastructure of the future. Our ambition is nothing less than to rebuild the internet hardware to suit it to the needs of 21st-century Britain.
"Traffic on the global communications infrastructure continues to increase 80 per cent year-on-year. This is driven by rapidly expanding and increasingly demanding applications, such as internet television services and new concepts like cloud computing. What this project proposes is a radical transformation of the physical infrastructure that underpins these networks."
Over the past 25 years, optical fibres have revolutionised communications, transmitting more information over greater distances than could ever have been achieved with copper wires.
Through looking at every detail of the infrastructure that underpins the internet, the Photonics HyperHighway project has the potential to achieve seamless, ultra-fast connections that will link people and business across the world.