The beach plastic and industrial plastic led to "severe, consistent and treatment-specific developmental abnormalities", the study found, including deformed skeletons and nervous systems.
Such high levels of plastic contamination are unlikely to be seen in most bodies of water, but could be found in severely polluted rockpools or ports, or after spill events, said the paper, published in the journal Environmental Pollution.
Significant study has been carried out on the impact of plastic on marine animals when they accidentally ingest it, but less study has been done on the impact of chemicals in the water on early development.
Lead author Flora Rendell-Bhatti, of Exeter University's Centre for Ecology and Conservation, said: "We are learning more and more about how ingesting plastic affects marine animals.
"However, little is known about the effects of exposure to chemicals that leach into the water from plastic particles.
"This study provides evidence that contamination of the marine environment with plastic could have direct implications for the development of larvae, with potential impacts on wider ecosystems.
"Our work contributes to the growing evidence that we all need to help reduce the amount of plastic contamination released into our natural environment, to ensure healthy and productive ecosystems for future generations."