The Government faced an angry backlash from health workers ranging from midwives and nurses to ambulance drivers, after refusing to give an across the board wage rise in the NHS.
Unions accused ministers of "taking a scalpel" to pay and of plunging morale to new levels, amid warnings of industrial action in the coming months.
Increases of 1% will be given to some staff in the NHS from April, as well as to members of the armed forces, doctors and dentists, senior civil servants, prison officers and the judiciary, following recommendations from pay review bodies.
But an estimated 600,000 health workers will only receive their normal incremental pay rise rather than a recommended 1%, while 400 "very senior managers" in the NHS will not receive the 1% increase.
The same approach will be taken next year, leading unions to warn that NHS workers faced another two years of below-inflation pay increases.
Unite said it will consult its 100,000 NHS members about the possibility of industrial action, while Unison and the GMB refused to rule out similar moves.
Unison accused the coalition of taking a scalpel to the pay review report and of "showing contempt" for NHS workers, claiming that 70% of nurses will receive no pay rise this year.
The Health Department said the figure was wrong, insisting that everyone in the NHS will get at least a 1% pay rise.
Over half of NHS staff receive incremental pay increases, averaging 3%, at a cost of almost £1 billion, said the department.
Chief Secretary to the Treasury, Danny Alexander, said: " We need to continue with public sector pay restraint in order to put the nation's finances back on a sustainable footing.
"We are delivering on our commitment to a 1% pay rise for all except some of the most senior public sector workers."
Health Secretary Jeremy Hunt said that if the recommendations had been accepted, around 6,000 nurses' jobs would have had to go as the NHS pay bill would become unaffordable.
He also signalled his intention to abolish the progression pay system in the NHS.
The Government said the pay policy in the NHS would save over £200 million in 2014/15 and over £400 million in 2015/16, which it announced would be reinvested into the health service and help protect jobs.
Unison's national officer Christina McAnea said: "The Government has shown complete contempt for the NHS, contempt for staff and contempt for patients and will pay the price at the ballot box.
"Even a straight 1% increase would be nowhere near enough to meet the massive cost of living increases that NHS staff have had to cope with since 2010.
"Staff are on average, 10% worse off than when the coalition came to power."
Rehana Azam, national officer of the GMB, said: "The government is not accepting the pay review body recommendations for 2014 but they are also seeking to dictate pay for two years. They have by suspended the NHS pay review body for 2015. GMB members across the country will take the blocking of a full 1% pay rise as a personal insult.
"GMB will immediately begin making arrangements to consult members who will be asked to vote in a consultative ballot to decide the next steps in this dispute."
Dean Royles, chief executive of NHS Employers, said: " The simple fact is that the decision to have no annual pay increase for those already eligible for increments will help ensure more staff remain in employment than would otherwise be the case.
"More than two-thirds of NHS spending is on staff and increasing all staff pay by 1% would have cost about half a billion pounds, equivalent to around 14,000 nurses."
TUC general secretary Frances O'Grady, said: "It is 'national destroy public sector morale day' today as the Government announces a further cut in the living standards of public sector workers, despite the economic recovery.
"NHS staff have been singled out for particularly harsh treatment, at a time when they are already facing a funding crisis, staff cuts, privatisation and top-down restructuring.
"With public service workers due to pay higher pension contributions, many will see almost no difference in their take home pay despite facing higher bills.
"Ministers' message to Britain's young people is that they should not seek a career in health, education or other public services if they want a decent standard of living or to work for an employer who values them."
Prime Minister David Cameron said during his trip to Israel: " NHS staff are worth a 1% pay rise and everyone in the NHS will get at least a 1% pay rise, either through the 1% raise or through the progression payments that they otherwise receive.
"It is good that it is increasing and not frozen but it is right to take those difficult decisions because it means we can keep more people employed, we can keep more people in work and make sure we spend money on vital treatments, on hospitals, on delivering services, which is what patients so badly want."
Unite's head of health Rachael Maskell said of the health secretary: "He is deliberately muddying the waters by trying to imply that the annual increment that staff receive, as they gain more skills to benefit patients throughout their careers, is part of the annual pay increase - it is not," she said.
"It is despicable that Hunt has adopted such an underhand tactic.
"The PRB's role is defunct, if ministers continue to steam roller its copious evidence gathering process which leads to its considered recommendations on pay.
"We will be consulting with our members about the possibility of industrial action."
Jon Skewes, director for policy at the Royal College of Midwives, said: " It is yet another body-blow to NHS staff facing rising pressures and working ever harder without any reward.
"Morale in the profession is at rock bottom and this announcement will do nothing to help."
Peter Carter, general secretary of the Royal College of Nursing, said: " Less than half of nursing staff at the top of their pay increment will get a paltry 1% rise, following three years of pay restraint.
"The rest will simply get what they are contractually entitled to, if they can demonstrate they have developed their skills in the previous year."
The Scottish government said NHS staff in Scotland would receive a 1% pay uplift from April, while staff earning under £21,000 would also receive an additional sum to increase their pay by £300 in total.
Health Secretary Alex Neil said: "I was clear when Jeremy Hunt first suggested reneging on the 1% pay offer for NHS staff in England that we would block that move here and that we would fully implement the modest increase in Scotland."
The Government also announced that its reforms of public sector pensions were nearing an end, but valuations were expected to reveal that the current contribution rates were insufficient to meet the full costs of schemes in the future.
If current rates were allowed to continue, the shortfall would be nearly £1 billion a year across the teachers, civil service and NHS schemes.
Where new valuations showed not enough had been paid into the schemes, government departments would need to increase their contributions.
Shadow health secretary Andy Burnham said: "We support pay restraint, including in the NHS, but it's unfair for NHS staff to be singled out in this way.
"If David Cameron hadn't wasted £3 billion on a reorganisation nobody wanted, the NHS would have a much better financial outlook than it has today. His reorganisation resulted in six-figure pay-offs for thousands of senior managers and pay cuts for nurses.
"It will be galling for nurses hearing this news today - they work flat out in difficult circumstances. Morale is already low and this broken promise by ministers will damage it even further."
The Armed Forces Pay Review Body warned that there would be a "significant impact on the morale and motivation" of personnel if below-inflation rises continued in the future - making it more difficult to retain key servicemen and women.
In its report recommending a 1% rise from April, it said: "A sustained period of pay restraint, with base pay increases set at levels below inflation, risks having a significant impact on the morale and motivation and could impact adversely on retention, particularly in groups with key skills.
"It will be important to keep outflow under review and be proactive in addressing problem areas as they are identified."