MPs are facing an outcry after it was announced they are in line for a pay hike to £74,000 while the rest of the country suffers austerity.
The taxpayer will be hit with a £4.6 million bill for the increase which will take effect after the general election in 2015.
However, the Independent Parliamentary Standards Authority (Ipsa) also proposed to offset the costs with curbs to pensions, expenses for dinners, TV licences, taxis, and "golden goodbyes".
It insisted that the overall burden on the taxpayer will only go up by £500,000 when the package comes into force. The regulator is also urging politicians to publish an annual "MoT" explaining the work they have done for the money they receive.
Sir Ian Kennedy, the chairman of Ipsa, defended the plan. Speaking to BBC Radio 5 Live on Thursday morning, he said the current pay level was "not fair to MPs and not fair to the taxpayer".
"Taxpayers deserve to have an MP who is properly remunerated," he said.
And he said if politicians were not paid more it would be "running sore" among MPs. "It will cause MPs to pile in to say this, that or another about their renumeration."
"I think because there is never a right time, now is as good a time as any to say we've got to end this running sore of political life."
Unions immediately demanded matching 11% increases for their members, while a number of MPs broke cover to condemn Ipsa for opening them to public vitriol.
Public and Commercial Services union general secretary Mark Serwotka said: "We continue to oppose public sector pay cuts so public servants will be rightly outraged if MPs, almost all of whom support the government's pay freeze and cap, accept a hypocritical double-digit percentage increase.
"The law has been changed in recent years to cut pensions and civil service redundancy payments to pave the way for massive job cuts, so people will reject any attempt by MPs to claim they are powerless. If these pay rises went through it would simply fuel public anger and resentment at the cosy clique operating at the heart of Westminster.
"There seems to be a myth across the public and private sectors that low paid people are encouraged to work harder by cutting their pay, but the already handsomely paid should be incentivised with ever higher salaries."
Under the shake-up, the current salary of £66,396 will rise to £74,000 in May 2015, at a cost of £4.6 million once extra national insurance contributions are taken into account
From then wages will rise annually in line with average UK earnings, a mechanism the regulator hopes will ensure the situation is resolved for the long term.
The existing final salary pension scheme will be downgraded to career average - as happened across the rest of the public sector some years ago.
Benefits will accrue at 1/51 of salary per year, rather than 1/40. But they will have to contribute less - 9.2% of salary instead of 13.75% - and the retirement age will be the same as for the state pension.
Death in service benefits will also be reduced from four and a quarter times salary to twice salary, and widows will be entitled to less.
In total the pension changes will save £2.5 million in the first year, according to Ipsa.
The old pre-2010 "resettlement grants" of up to £65,000 for departing MPs, even if they stood down voluntarily, will not be brought back.
In 2015 there will be interim arrangements of up to £33,000 for those who lose an election, but by 2020 defeated politicians will only be entitled to two weeks' pay for every year of service if they are under 41, and three weeks if they are older - similar to redundancy terms in the rest of the public sector.
The £15 expenses available for dinner when the House sits beyond 7.30pm will be scrapped, and there will be tighter rules on using taxis and hotels.
There will also be a crackdown on claims for running second homes, with costs of TV licences and contents insurance no longer being met.
The expenses tweaks will save £178,000 in 2015, Ipsa said.
The proposals will go out for consultation before Ipsa finalises the arrangements in the autumn. Party leaders have signalled alarm at the prospect of a pay rise above the 1% cap imposed on the public sector for 2015-16 - but it would require a change in the law to prevent the regulator pushing it through.
Tory backbencher Charles Walker said it was a mistake to hand responsibility for setting MPs' pay to Ipsa and he strongly criticised the way the issue had been handled by the party leaders.
"Here we are in another pickle with the pay of Members of Parliament being politicised again by the Prime Minister, the Leader of the Opposition and the Deputy Prime Minister," he told the BBC Radio 4 Today programme.
"If they don't want MPs to receive this pay rise, which clearly they don't, then the only answer is to scrap Ipsa but they would look pretty stupid arguing for that having argued that this was necessary to clean up politics."
He added: "I am fed-up of having my pay and conditions politicised for political gain by the leaders of the three main political parties. I suggest that when you become the leader of a political party or prime minister your pay is reduced to that of a backbench Member of Parliament."
Lib Dem MP Roger Williams said it was right that MPs' pay was set independently, but said the rise being recommended by Ipsa was too high.
"I think MPs are as shocked as the public about this proposal. I think that there is cross-party consensus that it is completely inappropriate to have a rise of this scale," he told the Today programme.
"It comes as a great disappointment to me that in making this recommendation, it may be based on some comparable figures and salaries, but it hasn't taken into account public opinion."