Susanne Diekelmann, a researcher in Jan Born's lab at the University of Lubeck in Germany, revealed that volunteers participating in her study were made to learn words that could be linked to the word 'black' - such as 'white', 'dark', 'cat' and 'night' - but black itself would not be part of the list.
The subjects' memories were then tested after a night's sleep or a night spent awake, she said.
The participants were given the list of words again, having added a few extra words, and asked to recall if the words had been in the original list.
Those in the sleep-deprived group were found to give more false responses than people who were allowed to sleep.
"A lot of subjects said, 'yes, these false words were presented before', and they were absolutely sure about it. Sometimes they were even more convinced than on the real words," Nature magazine quoted Diekelmann as saying.
She says that it isn't sleep deprivation itself that causes the formation of false memories, but the act of retrieving them from storage.
During their study, her team kept one group of people awake for one night, let them catch up on their sleep the next night, and then tested them.
The researchers observed that the volunteers recalled the same number of false memories as those who had not been sleep-deprived at all.
"(In the past) it has been difficult to separate fatigue effects from consolidation," says Brian McCabe, a memory and learning researcher at the University of Cambridge, UK.
However, the new findings appear to confirm that false memories are indeed consolidated at the moment of retrieval.
The researchers later set out to determine, if false memories were being generated at retrieval, could a dose of caffeine reduce the effect of sleep deprivation.
They took two more groups of volunteers, deprived them of sleep, and then gave them either caffeine or a placebo in the morning, one hour before their memories were tested.
People given caffeine had 10 percent fewer false memories than those who did not receive any.
Diekelmann says that that effect might occur because caffeine is known to affect the prefrontal cortex-a region of the brain that is impaired by sleep deprivation, and has previously been shown to help discriminate between things that have actually happened and things people have only thought about.
She believes that understanding the false-memory process may be crucial to situations in which accurate recall is needed, such as when witnesses give statements in legal trials.
The findings were recently presented at the Federation of European Neuroscience Societies Forum in Geneva, Switzerland.