Police officers have marched in protest at their pay deal
Home Secretary Jacqui Smith erred in law when she "shaved off" three months' worth of a police pay rise, Police Federation lawyers have argued.
The organisation is applying for judicial review of her decision not to back-date a 2.5% pay rise to September.
Gavin Millar QC told the High Court Ms Smith had "a closed mind" on the issue and her decision could not stand.
Ministers argue staging the rise in England, Wales and Northern Ireland is essential for the economy.
But Mr Millar said the move would cause officers to lose an average of £200 from the start of the police pay year in September.
Far more important was "the impact on the morale and confidence of the police over the statutory procedures for determining their pay", he told judges Lord Justice Keene and Mr Justice Treacy.
He said the home secretary had failed to recognise the "special and unique position" of the police and the restrictions on their freedom of action, including the right to strike for better pay.
The police said a 2.5% pay rise was agreed, but that not back-dating it to the beginning of the police's financial year in September made it worth just 1.9% annually.
Mr Millar told the court Ms Smith was determined to deliver an in-year award below 2% in line with the Treasury's demands.
"The Home Secretary approached her decision as to implementation of the award with a closed mind - such was her determination to comply with the strictures of the Treasury's dictats at the outset of negotiations," he said.
Ministers, however, say staggering the increase is needed for economic stability, and that since 1997 constables have had an overall rise of 10% above inflation.
Both Ms Smith and Prime Minister Gordon Brown have argued the award is appropriate and is in line with inflation targets - in particular, it is within the government's 2% public sector pay limit.
Home office lawyers argue Ms Smith did not have a closed mind in looking at the issue, the government repeatedly made its position clear and acted within its powers.
Outside court, a Home Office spokesman emphasised the importance of "affordability" but said ministers recognised the "vital and hard work" police officers carried out every day.
He added: "Pay arrangements must be fair and affordable, both for the police service and for the taxpayer.
"The Home Secretary has made clear the importance she places on affordability and government pay policy - ensuring that mortgages and inflation are kept under control for families across the country."
The situation in England, Wales and Northern Ireland is in contrast to that in Scotland, where officers have received the back-dated pay rise in full.
Thousands of police officers from across the country organised a protest march in London in January over the issue.
The hearing is expected to last two days.