Members of the armed forces will receive a 2.6% pay rise from April, the defence secretary has announced.
Des Browne said he is committed to the independent pay review
Recommendations from the armed forces pay review body have been accepted in full by the government.
Des Browne told MPs the rise was in line with inflation and the chief of the defence staff welcomed it.
The adjustment to military pay, which reflects the conditions faced by the armed forces compared with civilians, known as the "X Factor", rises by 1%.
Specialist rates of pay, including flying pay, submarine pay, diving pay and hydrographic, will also increase by 2.6%.
Nuclear submarine watchkeepers, army vehicle mechanics, Royal Artillery and RAF Regiment gunners and firefighters will also be offered extra incentives.
A new category of specialist pay is being created for bomb disposal experts.
Speaking outside the Commons, Air Chief Marshal Sir Jock Stirrup, chief of the defence staff, said: "This pay increase is good news for the armed forces at a time when their dedication, determination and courage continue to be tested.
"It reflects the outstanding contributions our people and their families are making to the defence of our nation.
"It is also a tangible demonstration of the high regard in which our people are held by the government and the nation."
Junior defence minister Derek Twigg said: "This pay award recognises the tremendous contribution all our service personnel continue to make at home and overseas."
The pay award is greater than the settlements imposed on public sector workers and Gordon Brown has said he wants to keep awards below 2%.
'Lives on the line'
Downing Street said this pay award was for a different pay round than the controversial settlements imposed on other public sector workers for 2007-08.
Prime Minister Gordon Brown's spokesman said: "The government continues to believe there needs to be discipline in relation to public sector pay and we need to set awards in line with the government's inflation target."
Decisions have to be taken year by year, sector by sector, he said.
He added decisions on pay in relation to public sector workers for this year have not yet been made.
BBC political correspondent Carole Walker said the award was in recognition of the extraordinary work being done by the armed forces in Afghanistan in Iraq.
"There is also recognition that those with their lives on the line, even with this pay increase, are only going to be earning between £16,000 and £25,000," she said.
"I think there will be general support for this increase although it is larger than for some in the public sector."