Downing Street has confirmed that the 1% pay cap for prison and police officers has been lifted and that there will be wider public sector pay rises from next year.
However, with other public sector workers having to wait longer for any increases, unions now meeting this week for their annual congress have warned industrial action could follow as a "last resort".
The move comes amid growing pressure on the government to give public sector workers a pay boost after seven years of austerity.
The higher increases for rank-and-file police and prison officers, which are backdated to 1 September and 1 April respectively, are based on the most recent recommendations of independent pay review bodies.
"The idea that robbing Peter to pay Paul, raiding already stretched departmental budgets, will solve this problem shows Theresa May is living in a fantasy land, far removed from public opinion". Earlier this morning the shadow Justice secretary Richard Burgon repeatedly refused to rule out supporting illegal strike action.
Gail Cartmail of Unite said the cap on public sector pay was "contaminating" many private firms who have followed suit.
Len McCluskey warned the government co-ordinated industrial action on the issue was "very likely".
"For seven long years the Government's harsh pay cap has been hurting public sector workers, their families and the services they provide".
General Secretary for the Trades Union Congress, Frances O'Grady said: 'This below-inflation pay offer is pathetic.
"The Government has made a mockery of the independence of the Pay Review Body for too long".
Steve White, chair of the Police Federation of England and Wales, said: "Police officers do not join the service to make huge amounts of money; they do it out of a sense of duty and this year in particular have been tested to the max". "We asked for 2.8% and provided compelling evidence to support this".
Chief Constable Francis Habgood, of the National Police Chiefs' Council, said forces had budgeted in line with the 1% cap until 2020, adding that without extra government funding the latest award would "inevitably impact on our ability to deliver policing services and maintain staffing levels".
Leaders of unions representing millions of workers said they will continue campaigning for wage rises. A pay cut is a pay cut. "We must be united in breaking the pay cap for all workers".
Unison general secretary, Dave Prentis, said: "It's a tiny step in the right direction but not almost enough".
Last month, Scottish First Minister Nicola Sturgeon announced the 1% cap would be scrapped from next year.