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Prime Minister Jacinda Ardern has announced plans to freeze the salaries of MPs while a review of the pay-setting system is carried out.
MPs' pay rises are decided independently by the Remuneration Authority.
The announcement at today's weekly press conference comes before the authority has a chance to announce the next pay rise.
Ardern said it is not appropriate for MPs to be subject to such an increase.
She sad everyone was totally supportive of the decision and there was "complete understanding".
"It is about values. We are focused on raising the income on lower to middle income earners," she said.
Ardern said the way the draft increase had been determined did not seem fair.
"We want to give transparency and have another group determine how our increases in salaries are determined," Ardern said.
"We do not believe, given that we are at the upper end of the scale, that we should be receiving that sort of increase.
"The current formula isn't meeting our expectations.
"What we have seen in this determination I believe is out of kilt with those expectations.
"This is about us acknowledging that we are at the top end ... and this only extends that gap."
Ardern said there were a range of different options that would be considered.
An initial change in legislation will bring about the freeze. The freeze will take place over 12 months.
"We have no expectation there will be any movement over the next 12 months," she said.
The pay increase was due to take place sometime this month, and be backdated to July.
"This is an absolute acknowledgement that we are high income earners compared to other New Zealanders ... we are not comfortable with that and this is our response," Ardern said.
The Minister for Workplace Relations and Safety, Iain Lees-Galloway, said the Government needed to take action before the Remuneration Authority initiated new pay rates.
"Because of the timing of the annual increase process set in the Act, we need to use an urgent legislative process, aiming for introduction in September.
"This means we need to amend the Remuneration Authority Act 1977 to suspend new Determinations by the Remuneration Authority and restore the 2017 Parliamentary Salaries and Allowances Determination until 30 June 2019," Lees-Galloway said.
The freeze will apply to MPs' salaries, superannuation subsidies and expense allowances. It will not affect certain services such as accommodation, travel and international travel, because these services relate to the differing requirements of roles that MPs and Ministers may perform.
The Taxpayers' Union has welcomed the MP pay freeze announcement.
"This is a very welcome and wise decision from the Prime Minister, and acknowledges the problems we flagged last year," Taxpayers' Union executive director Jordan Williams said.
"When the previous government decided to tie MP salaries to public sector wage growth, we pointed out that it would create perverse incentives for politicians to boost public sector wages. We're glad to see Prime Minister Jacinda Ardern listening."
"We will be engaging with the Government and publishing a report in the coming weeks, proposing more taxpayer-friendly ways to set MPs' pay."
Former Prime Minister Sir John Key initiated a move in 2015 to peg salary increases to other public sector increases.
Last year's pay rise for MPs was announced six days after last year's election and before the new Government was in place.
For last year's pay increase, the change in earnings for employees in the public sector from 2016 to 2017 was 2.46 per cent.
The Remuneration Authority is headed by former MP Dame Fran Wilde.
Earlier today, her Government announced where 1800 new police officers would be posted around the country - including more than 100 new cops in Auckland.