MPs have changed the law to reduce their own pay rises, but Opposition parties argue that passing it under urgency means it will not be a long-term fix.
Legislation pushed through last night reverses a Remuneration Authority determination last month that gave MPs a 3.5 percent payrise.
Workplace Relations Minister Michael Woodhouse said the bill responded to the disproportionate growth in MPs' pay by linking it to the average growth in public sector wages.
"The Government has said, 'you know what? We are paid fairly for what we do now and the level of increase is inappropriate in the circumstances and this is the right thing to do'."
Pay rises for MPs will be calculated based on the average increase for public servants, as measured by the Quarterly Employment Survey.
Green Party co-leader Metiria Turei said one of the significant failures in the bill was that it used a percentage formula.
"Percentage increases mean those who are rich get richer faster, and those at the bottom stay stuck, and a better approach would be to attach MPs' pay to nominal increases in the median wage."
The legislation passed by 106 votes to 14 with the Green Party voting against it.
The more modest pay rise will be back dated to July last year and paid next week.