Schemes which pay GPs for not sending people for hospital care are bad for patients, says the British Medical Association (BMA).
Some doctors have struck deals with local health bosses to cut the number of referrals they make.
However, the BMA said that all decisions should be driven by the needs of the patient.
The Department of Health said that incentive schemes should make sure that people were treated in the right place.
The relative success of the NHS in reducing waiting times to around 18 weeks has drawn more patients back into the system from private healthcare.
The consequence of this is a surge in referrals - where a GP passes a patient into the care of a hospital consultant or department - making it harder for the NHS to hit its waiting time targets.
One scheme in Oxfordshire offered payments to GPs to help address the 8% rise in referrals to local hospitals - adding up to a possible extra £20,000 for the average practice.
However, the row over such incentive schemes has been rumbling for months, with accusations that the cash reward would prove an undue influence over doctors.
Now the BMA says that GPs should refuse to take part in schemes which offer payment in return for clear referral targets.
Its guidance says that some "referral management" schemes, in which GPs get the chance to discuss cases with hospital doctors, are a good idea, and can mean the patient gets the right treatment more quickly.
However, some cash-based deals offer a "perverse incentive" to reduce referrals, it says.
Dr Laurence Buckman, who chairs the BMA's GP's Committee, said: "It is not acceptable for these schemes to provide specific financial rewards to GP practices which reduce patient referrals to pre-agreed levels or by certain amounts.
"This doesn't help anyone - patients, local services, or the wider NHS."
He added: "We understand that in some areas of the country, referral rates are rising, putting extra financial pressure on the NHS, but health managers must not seek to tackle this problem by setting up target-based referral schemes.
"All referrals must be driven solely by what is in the best interests of the patient."
The Department of Health has already expressed concern about such deals, and wrote to health authorities last year.
A spokesman said: "GPs have an overriding professional duty to provide the best care for each individual patient.
"Where primary care trusts agree local incentive schemes with GPs, these are not intended to cut across this duty or in any way restrict patient care.
"We have made it clear to the NHS that any local incentive schemes must help ensure that patients get the right treatment in the most appropriate setting."
David Stout, director of the PCT Network, which represents all primary care trusts in England, said there was nothing wrong with monitoring referral rates from different practices, as reducing unnecessary referrals could release cash to be spent elsewhere.
However, he said: "The BMA is right that schemes and incentives to keep referrals down should not financially benefit individual doctors.
"Any scheme which appears to undermine a GPs overriding duty to provide the best care for each individual patient would be damaging to public confidence.
"We can not have patients appearing to be referred to hospitals simply on the basis of whether a target has been hit yet or not."