The Government has been accused of "taking a scalpel" to the pay of health workers by refusing to give an across the board wage rise.
Increases of one per cent will be given to some staff in the NHS, as well as to members of the armed forces, doctors and dentists, senior civil servants, prison officers and the judiciary.
But an estimated 600,000 health workers will only receive their normal incremental pay rise rather than the one per cent, which had been recommended by a pay review body.
Around 400 "very senior managers" in the NHS will not receive the one per cent rise.
The move means that health workers face a fourth year of below-inflation increases and sparked anger from unions.
Unison accused the coalition of taking a scalpel to the pay review report and of "showing contempt" for NHS workers, adding that 70 per cent of nurses will receive no pay rise this year.
The GMB said it will now consult its members in the NHS on what they wanted to do, warning that the blocking of a full one per cent pay rise would be taken as a "personal insult."
Chief Secretary to the Treasury, Danny Alexander, said: "Public sector workers make a vital contribution to the effective delivery of public services. 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."
The Government said the pay policy in the NHS will save over £200 million in 2014-15 and over £400 million in 2015-16, which it announced will be reinvested into the health service and help protect jobs.
The Treasury said: "The public sector pay bill makes up over half of departmental resource spending, therefore continued pay restraint remains central to the Government's deficit reduction strategy. Public sector pay restraint has already helped protect thousands of jobs and frontline services."
Unions reacted with fury, saying the announcement meant over 60 per cent of NHS staff will not receive a pay rise in the coming financial year, including 70 per cent of nurses and midwives.
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.
"Increments are designed to reflect the growing skills and experience of nurses and other healthcare workers and are closely linked to competency. They are not a substitute for the annual pay rise that is needed to meet the increasing cost of living.
"If the Government is set on imposing this change, it clearly doesn't understand how increments work. As it stands, they save the NHS money but if this divisive plan goes ahead Unison will be arguing strongly that staff should be paid the full rate for the job from day one.
"I am appalled that this coalition government can openly boast about the economic recovery and claim that we are all feeling the benefits and then treat health workers so shoddily."
Rehana Azam, national officer of the GMB said: "GMB members across the country will take the blocking of a full 1% pay rise as a personal insult.
"GMB members will not stand aside whilst the Government makes such direct attacks on their pay and conditions. 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.
"How will blocking this meagre rise help living standards to recover to pre-recession levels?"
Dean Royles, chief executive of NHS Employers, said: " We know how tough this decision will feel and how disappointed staff will be.
"The evidence we gave to the review body said any rise would add to already significant cost pressures. Employers are recruiting more front-line staff with no additional money and this is not sustainable.
"The simple fact is that the decision to have no annual pay increase for those already eligible for increments will help ensure more that 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.
"Even with limiting the increase to staff at the top of their pay scales, employers still face a £150 million pay bill pressure this year. This is bound to have an impact.
"The announcement will however give employers some certainty over pay for the next two years and we can now turn our attention to how we can come out of this period of pay restraint in a mature way.
" I know trade unions will be angry but hope they will recognise a shared desire to maximise job security for staff and work with us on creative solutions."
The Government also announced that its reforms of public sector pensions were nearing an end, but valuations are expected to reveal that the current contribution rates are 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 show not enough has been paid into the schemes, government departments will need to increase their contributions.
The Treasury said: "The Government's full package of long term public service pension reforms, including raising retirement ages and increasing member contributions, are forecast to save almost £430 billion over the next five decades. These changes will help to put the long term public finances back on a sustainable footing.
"As part of the reforms, it is necessary to establish exactly what the pension schemes cost. The Government is therefore in the final stages of conducting the most comprehensive valuation of the schemes ever, and assessing whether public service employers have made the proper level of contributions in the past."
Mr Alexander said: "An excellent pension has long been part of the reward for a career serving the public. It is only possible to ensure that public service workers continue to have among the best pensions available if we also control the costs in the long term.
"Our reforms overall will save nearly £500 billion. Ongoing analysis of what is a fair contribution is the final stage of the reforms, which will ensure that long term costs of public service pensions remain under control and are fairly distributed between employees, employers and taxpayer."
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."
In a BBC interview during his trip to Israel, Prime Minister David Cameron was asked why he did not feel all NHS staff were worth a 1% pay rise.
Mr Cameron replied: "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.
"But let's look at the big picture here. It is right to make difficult decisions about public sector pay.
"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."