The change, which will be announced on Monday, will affect over 150,000 employees who work for the 3,600 companies who pay the voluntary wage that aims to reflect the wage needed to sustain a decent quality of life.
It has set the voluntary rate at £8.75 for workers throughout the United Kingdom - and increase of 30p on its previous rate - and a wage of £10.20 for those working in London.
The discount supermarket has lifted its entry-level wage from £8.45 to £8.75 per hour outside of London.
The foundation said the 2017 increase has been driven by inflation, as well as an increase in rent and transport costs. Employers who sign up to the Living Wage commit to pay it to all staff over the age of 18 who work regularly on their premises.
The so-called real living wage will increase by 4.6 per cent to £10.20 an hour in London and by 3.6 per cent to £8.75 in the rest of the country.
Research from accountancy firm KPMG shows that more than one in five workers in the United Kingdom - an estimated 5.5 million people - are still earning below the living wage and are battling against in-work poverty.
"It is clear that it may not be possible or practical for everyone, but businesses need to do what they can to address the problem of low pay".
The voluntary Living Wage is enough to ensure that employees and their families can live free from poverty.
Andy Bagnall, director at KPMG, said: "Today's figures show that more work needs to be done if we are to eradicate in-work poverty".
Addressing household finances, Bagnall said that although less people were earning below the RLW, those at the bottom of the pay scale were feeling the "squeeze" due to increases in the cost of living and a decline in pay.
"We firmly believe that paying the living wage is the right thing to do as a responsible employer", Heathrow Chief Executive John Holland-Kaye said.
"Extending the living wage is vital".
Many high-profile employers including luxury hotel chains and most Premier League football clubs have failed to sign up to the pledge.
TUC general secretary Frances O'Grady urged more employers to sign up.
The Oxford Living Wage is based on the Living Wage, an hourly pay rate which is calculated for the Living Wage Foundation and updated every October.