MPs' salaries will rise from £67,060 to £74,000, the Independent Parliamentary Standards Authority has announced.
The 10% pay rise has been approved despite Downing Street and a succession of MPs saying it was "not appropriate".
IPSA chairman Sir Ian Kennedy said that MPs' pay had been a "toxic" issue "which had been ducked for decades".
He said the pay rise would not cost any money because it was being combined with cuts to expenses, pension and severance payments for MPs.
The independent watchdog, set up to bring in and run a new expenses and pay system for MPs after the expenses scandal of 2009, says in future MPs' pay would rise in line with average rises in the public sector.
Analysis: By BBC political correspondent Iain Watson
The pay rise for MPs is something which is seen to be perhaps not entirely politically sensible at the moment. Still in an age of austerity, still paying down the deficit, restrictions on public sector pay.
But that said, it's an independent body, IPSA, that's doing it. Their assessment is that MPs are underpaid but that they had far too many generous allowances.
So what they've decided to do is have a series of reforms that don't cost the taxpayer a penny more. So for example, MPs will have a restructured pension scheme and lose some of their expenses, such as for evening meals.
IPSA says this is a very sensible package, but it comes at not a very sensible time if you're an MP, because it looks as though you're getting more than 10% while your constituents are probably having their pay restrained.
That was a change from its earlier suggestion that their pay would be linked to average earnings, which is likely to be higher over the next five years.
The measure being used by IPSA has also been negative in the past as a result of job cuts - and the watchdog's report stated: "If these data show that public sector earnings have in fact fallen, then MPs' pay will be cut too."
A number of MPs - including Education Secretary Nicky Morgan - have said they would give the money to charity, while Labour leadership contenders Andy Burnham, Yvette Cooper and Liz Kendall have said they would forgo the rise.
The then Education Secretary Michael Gove, now Justice Secretary, in 2013 said that IPSA could "stick" their pay rise.
David Cameron has refused to say whether he will accept the IPSA pay increase or not.
The prime minister told BBC's South West Spotlight programme "I don't agree with what's been put forward", but he stressed that IPSA was an independent body.
Asked whether he would give the money to charity, he said: "I give money to charity and [this money] will enable people to give more. But this is a private matter."
The government formally expressed its opposition to an increase in a letter to the watchdog's final consultation on the plans last month.
Sir Ian said: "We have made the necessary break with the past. We have created a new and transparent scheme of business costs and expenses, introduced a less generous pension scheme, where taxpayers contribute less and MPs make a higher contribution, and scrapped large resettlement payments.
"We have consulted extensively on MPs' pay, and with today's decision we have put in place the final element of the package for the new Parliament.
"In making this decision we are very aware of the strongly held views of many members of the public and by some MPs themselves.
"We have listened to those views. We have made an important change to the way in which pay will be adjusted annually.
"Over the last Parliament, MPs' pay increased by 2%, compared to 5% in the public sector and 10% in the whole economy. It is right that we make this one-off increase and then formally link MPs' pay to public sector pay."
Labour leadership contender Yvette Cooper said: "This is crazy. How on earth has David Cameron allowed this to happen? He needs to step in urgently and stop this MPs pay rise going ahead."
Jonathan Isaby, chief executive of the TaxPayers' Alliance, which campaigns for lower taxes and against spending waste, said: "Just a week after the chancellor rightly announced further pay restraint in the public sector, it is totally inappropriate for IPSA to be pushing forward with this pay hike.
"This unaccountable body is doing our MPs a great disservice: the invisible quangocrats at IPSA may have made this regrettable decision, but the public will inevitably direct their anger at their elected representatives in Parliament."