The study by the independent Institute for Employment Studies, on behalf of the Department for Education and Skills, found that 42% of undergraduates who applied to university in 1998 - when the government introduced up-front tuition fees - worked regularly during the term.
Today's report is the first government study to show a link between hours at work and the degree result gained.
Some 58% of those who worked regularly gained a first or upper second, compared with 71% for students not taking paid jobs. The difference was even greater, up to 18 percentage points, for students coming to university with top A-level grades or vocational qualifications.
The finding confirms warnings by universities and the National Union of Students that taking jobs of up to 30 hours a week in some cases harms academic performance. According to government figures last year, the proportion of working students was 58%.
The report also found that working students were most likely to be from poorer families. One told researchers: "I have received no money from my parents - there is a defi nite advantage for richer students. I was working 20 hours a week at times to support myself, while others did not work."
The findings are ammunition for critics of the government plans to lift the cap on fees from £1,125 to £3,000 a year. Critics argue that moves to restore a grant for poorer students will not be enough to prevent them taking jobs.
The government's student income and expenditure survey, published last November, found that those from the most disadvantaged backgrounds had nearly 50% higher debts on graduating.
Today's study confirms the trend and puts the average debt on graduation at £10,000.
Research fellow Emma Pollard, who led the study tracking 1,500 students between 1998 and 2003, said that working during the term had more impact on students' degree results than any other factor. However, the study also found that working during holidays appeared to have a positive effect on degree class.
Around 90% of students are thought to take paid work at some point. Most graduates now in full-time employment felt that their work experience at university had helped them to get a job, Ms Pollard said.
