Many government websites are still too complicated and difficult to use, says the National Audit Office.
While services like online road tax renewal are very popular, other sites such as HM Revenue and Customs (HMRC), are too complex, the report said.
Nearly 25% of departments do not know who is using their sites, or how much they cost.
Government sites cost £208m a year overall but little improvement had been made to quality since 2002, it said.
In January the government announced plans to close at least 551 of 951 websites, in order to streamline services through its "super sites".
The NAO report said the growth in online government services was "perhaps the most radical extension of access to public services as a whole for several decades".
Two fifths of the population do not have internet access, many people rely on "intermediaries" to use online services but in general, people were increasingly using the sites - particularly with the spread of broadband, the report said.
Local authority websites appear to be very popular - with 180m visitors a year.
But most people only knew a few key sites and tended to use "transactional services" once or twice a year - like filing income tax returns or renewing their car tax.
The Jobcentre Plus site was among the most popular and was visited at least once a week by 78% of users.
But others were difficult to use, too "text-heavy" and filled with policy material that was irrelevant to the visitor, the report said.
The average central government site had 17,000 pages - roughly equivalent to that of a large department store - yet most of their search engines "often fail to work satisfactorily", the report said.
'Lost in documentation'
The HMRC website was criticised by some of those interviewed who said they got "lost in complex documentation" looking for tax codes.
But the Directgov and Business Link "super-sites" were popular with the NAO's focus groups, who found they were "laid out clearly".
However few knew about them beforehand, and some felt the name Directgov was difficult to remember.
Up to a third of government websites may not meet standards for disabled or visually impaired people while, of the 3,400 forms available to download, only one in eight could be filled in and returned online.
"The vast bulk (85%) of forms still need to be printed and filled out on paper," the report said.
The report said that government websites had "improved slightly" between 2001 and 2006 in terms of quality, and about a tenth of all government sites had made "major improvements," but one in six sites had got "significantly worse".
NAO head Sir John Bourn said progress had been made in getting more information on the internet, but "little improvement" had been made in information held on the cost and use of websites.
"Departments need to focus on understanding the cost effectiveness of their websites and who uses them and why, so that they can better meet the needs of citizens."
The Conservative chairman of the public accounts committee, Edward Leigh, said it was "disappointing that there had been so little improvement in the quality of government websites since 2002".
"Departments have poor information on costs, websites are still hard to navigate and citizens have to wade through masses of irrelevant information to find what they need," he said.
In January, the government announced plans to close at least 551 of 951 websites, in order to streamline services through its "super sites".