The research, commissioned by the Countryside Alliance's Campaign for Shooting, has concluded that existing laws are targeting legitimate users of firearms rather than criminals.
The ban on ownership of handguns was introduced in 1997 as a result of the Dunblane massacre, when Thomas Hamilton opened fire at a primary school leaving 16 children and their teacher dead.
Existing gun laws do not lead to crime reduction and a safer place
Campaign for Shooting
The Centre for Defence Studies at Kings College in London, which carried out the research, said the number of crimes in which a handgun was reported increased from 2,648 in 1997/98 to 3,685 in 1999/2000.
It also said there was no link between high levels of gun crime and areas where there were still high levels of lawful gun possession.
Of the 20 police areas with the lowest number of legally held firearms, 10 had an above average level of gun crime.
And of the 20 police areas with the highest levels of legally held guns only two had armed crime levels above the average.
The campaign's director, David Bredin, said: "It is crystal clear from the research that the existing gun laws do not lead to crime reduction and a safer place.
"Policy makers have targeted the legitimate sporting and farming communities with ever-tighter laws but the research clearly demonstrates that it is illegal guns which are the real threat to public safety."
He said the rise was largely down to successful smuggling of illegal guns into the country.
Weapons have even been disguised as key rings no larger than a matchbox to get them in, he said.
Other sources of guns include battlefield trophies brought back by soldiers, the illegal conversion of replica firearms including blank firing pistols and the reactivation of weapons which had been deactivated.
Examples of illegally manufactured guns include screwdrivers being adapted to fire off one round, he said.
The Metropolitan Police said its official figures showed a 20% drop in armed robberies of commercial premises between April and July this year, compared with the same period last year.
A Scotland Yard spokesman said that, since April 2001, the Flying Squad has arrested 39 people in connection with 34 armed incidents and seized 52 weapons.
Operation Trident, which investigates "black on black" shootings in the UK, has made more than 300 arrests, recovered 100 firearms and 1,500 rounds of ammunition since it was established a year ago.
The Home Office said measures were being taken to tackle handgun crime, including an intensified effort against illegally smuggled weapons.