Cabinet has agreed that the annual percentage increase in pay for MPs will be 1.5% for this year.
That matches the average annual percentage increase in the public sector and compares with the 3.5% pay increase recommended by the Remuneration Authority.
Last week the Prime Minister announced he was planning to pass urgent legislation to change the way MPs pay was set.
He signalled it was likely that pay increases would match the average percentage increase in the wider public sector and be between 1 and 2 percent.
Mr Key today revealed that the average rate in the public sector is to be calculated using Statistics New Zealand's Quarterly Employment Survey.
The 1.5% pay increase covers the year starting July 1, 2014 running through to July 2015.
It will be backdated.