Gordon Brown insisted the public sector had to show "restraint" on pay, as he imposed lower-than-recommended 1.5% settlements for most senior officials.
Annual rises for teachers and military personnel were approved but the Prime Minister stepped in to restrict increases for top civil servants, NHS managers and judges.
"It is important in the present economic climate that senior staff in the public sector show leadership in the exercise of pay restraint," he said in a statement.
The move was branded "gesture politics" by unions - but also criticised by business leaders for not being tough enough.
The rises are well above the Retail Price Index (RPI) measure of inflation, which currently stands at 0%, and is often used as the basis for wage deals. However, they are below the Consumer Prices Index (CPI) rate of 3.2%.
Corin Taylor, senior policy adviser at the Institute of Directors, said: "Inflation is zero, the Government has enormous deficits it will need to reduce, and pay is now falling in the private sector. At the very least, pay should have been frozen for MPs and top public sector staff. Businesses struggling to pay taxes in the recession deserve no less."
The Senior Salaries Review Board (SSRB) had suggested that pay for senior civil servants should go up by 2.1%, but the Government reduced that to 1.5%. A recommendation that the bonus pot should be frozen was accepted. Permanent Secretaries have already confirmed they will forgo bonuses in 2009.
The SSRB called for the judiciary to get 2.6%, but that was cut to 1.5%. And the Government decided the most senior NHS managers will get the same rise, despite the review body saying they should receive 2.4%. Their bonus pot will also be kept at the same level.
Meanwhile, doctors and dentists are to receive their recommended increase of 1.5%, as are teachers with 2.3%.
The military again benefited from a high settlement, with the Prime Minister endorsing hikes of 2.8% for all personnel - including top brass, who are usually treated in line with senior Whitehall staff. The minimum pay for a private soldier deploying on their first operation will now be at least £20,255.
