Teachers in England and Wales will get pay rises above the 2% inflation target set by Prime Minister Gordon Brown.
Teachers' unions have given a divided response to the increase
The three-year pay deal will mean increases of 2.45% in September 2008 and 2.3% in each of the following two years, says Schools Secretary Ed Balls.
The award was higher than the 2% anticipated for public sector pay.
Teachers' unions were divided in their reactions - with both warnings of ballots for industrial action and support for the pay deal.
Head teachers' leader, John Dunford, welcomed the higher than expected rise.
"There had been a good deal of anxiety among school leaders at the prospect of a lower award," said Dr Dunford, general secretary of the Association of School and College Leaders.
Chris Keates, leader of the Nasuwt teachers' union, said: "Compared with other public sector workers, clearly we have fared well."
But she said the union would hold an opinion poll "to gauge whether teachers feel that the level of this award is going to be sufficient".
The National Union of Teachers remained unimpressed by the increase - warning that its executive would meet next week to plan a "robust response".
"Teachers have to pay increases in the cost of housing, fuel and food. This settlement is in effect a pay cut," said general secretary Steve Sinnott.
The Association of Teachers and Lecturers acknowledged that the award was higher than for other public-sector staff, but cautioned that it still failed to match inflation.
The salary increases, recommended by the independent pay body, the School Teachers' Review Body, have been accepted by Mr Balls.
Describing teachers as the "backbone of our education system", Mr Balls said that the pay award was "fair and affordable for schools".
"Today's pay award will enable teachers and schools to plan ahead with a greater degree of security and certainty and at the same time will help deliver stability for the taxpayer and the wider economy," said Mr Balls.
This pay award was being watched as an indicator of public sector settlements - and Mr Balls said that the deal was "consistent with the achievement of the CPI [Consumer Prices Index] inflation target of 2%".
Ed Balls says the pay settlement is "fair and affordable"
A spokesman for the Department for Children, Schools and Families indicated that this award above 2% did not mean the breaching of any pay limit.
"What the Prime Minister said was that going forward public sector pay increases must be consistent with keeping inflation at 2%. This is the first of the settlements he was referring to. He didnít say public sector pay would have to be 2%."
Mr Balls said the pay rise, which will also see a £25,000 minimum starting salary in inner London, was "value for money for taxpayers" and reflected the labour market.
In the upper pay scale for teachers in inner London, the value of the rise will be 3.45%.
The pay award comes against a background of threatened industrial unrest among teachers. The National Union of Teachers had already voted to prepare for a one-day strike in the event of a 2% offer.
The government measures inflation by the consumer price index, which was running at 2.1% in November.
But unions prefer another measure of inflation, the retail price index, which includes costs such as rent and mortgages - in November the retail index was running at 4.3%.
The announcement marks the first of a new round of multi-year pay settlements which the government is trying to agree with public sector workers in a bid to keep inflation down and help departments plan their budgets more effectively.
The government is coming under increasing pressure from unions in other sectors over its 2% ceiling.
In December, police officers in England, Wales and Northern Ireland were awarded a 2.5% pay rise but the Police Federation claims it was effectively only a 1.9% rise because the home secretary refused to backdate it to September.
The Scottish Government did agree to backdate the rise to September, as recommended by the Police Arbitration Tribunal.
The row has prompted the Police Federation to say it will ballot members in 2008 on whether they want the right to strike, as they are currently banned from doing so.
Nurses are also being restricted to a 1.9% rise.