Theresa May has poured cold water on calls for an end to public sector pay restraint, telling MPs that Britain must "live within our needs".
The Prime Minister has faced intense pressure from senior colleagues to end the 1% cap on wage rises, with one minister admitting the Cabinet is split on the issue.
Labour leader Jeremy Corbyn accused her of "recklessly exploiting the goodwill of public servants" by continuing with a policy which delivers a real-terms pay cut to millions of workers at a time when inflation is running at 2.9%.
Mrs May told MPs at Prime Minister's Questions in the Commons that upcoming recommendations from pay review bodies for teachers, police officers, prison wardens and senior civil servants would be "very carefully" considered.
But she left little doubt her position chimes with that of Chancellor Philip Hammond, who has warned a relaxation of pay restraint would require extra borrowing or tax rises to avoid increasing the deficit.
"Our policy on public sector pay has always recognised that we need to be fair to public sector workers, to protect jobs in the public sector and to be fair to those who pay for it," said the Prime Minister.
"That is the balance that we need to strike and we continue to assess that balance."
Restating her support for action to reduce the deficit, Mrs May warned that failure to keep public finances under control could put Britain in a similar position to Greece - a claim dismissed as "preposterous" by Labour, but described by a Conservative source as "a very real threat" if Mr Corbyn had the opportunity to put his policies into effect.
Downing Street aides later insisted that review body recommendations would be considered in the usual way over the summer, following 1% settlements for nurses and doctors earlier in the year.
They declined to say whether the pay bodies' remit would be altered in letters requesting recommendations for 2018/19, which are due to go out in the coming months ahead of Mr Hammond's autumn Budget.
Mr Corbyn said there was an "epidemic of low pay", particularly affecting younger people, and told the PM public sector workers "need a pay rise".
Mrs May had been able to find £1 billion for Northern Ireland "to keep her own job" by striking a deal with the Democratic Unionist Party, the Labour leader told MPs, adding: "Why can't she find the same money to keep nurses and teachers in their jobs?"
Labour called on Mr Hammond to give pay review bodies specific instructions to "make a fair pay award" to public sector workers, who endured two years of a pay freeze before the current 1% limit on annual rises came into force in 2013.
Describing the Government as being in "absolute chaos" on the issue, shadow chancellor John McDonnell told the Commons: "The Chancellor has no understanding why our public sector workers are so angry. They are angry because they've had enough of seeing tax cuts for the rich and corporations while their pay is being cut."
Mr Corbyn accused Mrs May of "flip-flopping and floundering" over the pay cap, after a week which has seen ministers including Boris Johnson, Jeremy Hunt and Sir Michael Fallon signalling their sympathy with those demanding a more generous raise.
The FDA union, which represents senior civil servants, wrote to ministers urging them to back up their "warm words" with action, saying: "If they believe the pay cap should be lifted, then they can begin with the civil servants in their departments who support them as ministers and deliver vital public services."
British Medical Association council chairman Dr Chaand Nagpaul said there was "growing support" among the public for healthcare professionals' demand for the "unfair and unacceptable" cap to be lifted.
Transport Secretary Chris Grayling acknowledged there were splits among senior ministers, telling BBC Radio 4's Today programme: "There is always going to be a debate around the Cabinet table about what to do and we are not all clones."
But in a debate called by Labour following PMQs, Treasury minister Liz Truss insisted the Government was taking "the right approach", rather than "saying that we're going to open up the cheque book, bankrupt our public services and see people lose their jobs".
Ms Truss was backed by former chancellor Kenneth Clarke, who warned that removing the cap would be "an economic disaster" and would leave ministers open to accusations of "a U-turn and a surrender (that) would set off a wave of pay claims".
But Liberal Democrat Treasury spokesman and leadership candidate Sir Vince Cable said the cap was causing "chronic labour shortages" and should be lifted "to reflect basic economic reality".
Mr McDonnell criticised the Chancellor for failing to attend the Commons to answer questions in person.
He added: "Today neither the Prime Minister, the Chancellor nor the Chief Secretary to the Treasury was able to tell us when a decision will be made about the future of the pay cap.
"The Chancellor should now formally inform the pay review bodies that they are free to do what is right by the public servants and the services we depend upon by making a fair pay award. If they won't the Tories should stand aside, for a Labour government will give our public sector workers the pay rise they deserve and end austerity in the national interest."