The most seriously injured troops will receive more money under changes to the armed forces compensation scheme.
Those hurt will receive up to £285,000 for all injuries suffered in a single incident - rather than just the three most serious, as had been the case.
Personnel whose cases have already been decided will also benefit - such as L/Bdr Ben Parkinson who was given £152,150 for injuries in Afghanistan.
The government said he would also receive a life-long guaranteed income.
Amid calls to increase the amount of the maximum available payout, a Ministry of Defence spokesman said the upfront lump sum was just one part of the compensation.
He said those seriously injured would also receive "tax-free, index-linked guaranteed income payments for the rest of their life, and they may also be entitled to additional state benefits".
He added that it could amount to hundreds of thousands of pounds and was relative to age, length of service and salary.
Changes to the MoD's compensation follow the completion of a review into the multiple injury rules of the scheme.
The MoD proposes to give additional benefits to service personnel whose cases dating back to April 2005 have already been decided, to bring them up to the same level of compensation as those determined under the new rule, once it is introduced.
Sources at the MoD said Mr Parkinson would now receive a £285,000 lump sum payment.
Defence Secretary Des Browne said the maximum payout available would not be increasing, despite the changes made to the system.
However, he said he thought the government had responded in "an appropriate period of time," and in "a generous manner".
Mr Parkinson's mother, Diane Dernie, said she was "pleased that the changes will result in increased payments" for her son.
But she said she would have expected an increase to the maximum amount.
"I still feel that financial security and some kind of dignity for these boys is still a long way off," she said, pointing out that housing and care needs for the rest of their lives meant those injured would need to rely heavily on their families.
She said her son, and others in similar situations, had "given their all" and "deserve not to have a life of worry for themselves and their families".
Shadow defence secretary Liam Fox said it was a "modest step" in the right direction but it would "make no difference" for the majority of those injured on active service.
"Ministers have still not addressed the paradox of civilians receiving compensation for relatively minor occupational injuries that is far in excess of payments to casualties, with the most appalling disabilities sustained, in the course of military service," he said.
Forces charity the Royal British Legion has claimed the government is in danger of not honouring its duty of care to the armed forces - the military covenant.
Chris Simpkins, director general of The Royal British Legion said the government's decision on compensation was "a win" its campaign on the covenant.
Mr Parkinson was injured by a landmine in Afghanistan in 2006
But the Legion said it was concerned the vast majority of injured personnel would not benefit from the proposed changes.
The increased payments will only be paid to those assessed as the most severely injured and who qualify for the full guaranteed income payment.
Mr Simpkins said: "There is plenty of work yet to be done. But make no mistake - this is an early victory in the Legion's campaign."
Mr Parkinson, 23, is reportedly one of the most seriously injured soldiers to survive.
The paratrooper lost both his legs as well as suffering a brain injury, fractures to his skull, cheekbone, nose, jaw, pelvis and vertebrae, in addition to serious damage to his spleen and chest.
An MoD spokesman said artificial limbs for injured soldiers, such as Mr Parkinson, would be provided until the person was discharged - and provided by the NHS thereafter.
Mr Parkinson, who had been serving with the 7th Parachute Regiment Royal Horse Artillery, was awarded £152,000 lump sum because rules of the scheme meant that most of his wounds counted for nothing.
In comparison, an RAF servicewoman who was left disabled after damaging her thumb received a payout of £484,000.
Her injury payment was made in a civil case and included loss of earnings and legal fees, as well as a sum for pain and suffering.
The payment made to her was not from the Armed Forces Compensation Scheme, unlike Mr Parkinson.
His lawyer Andrew Buckham, from law firm Irwin Mitchell, said: "We believe that £285,000 is far too low a maximum pay out under this scheme, to enable soldiers such as Ben to lead a life with the quality he deserves."