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Prime Minister Tony Abbott has backed down on Defence pay in spite of his previous protestations that he would not succumb to independent senator Jacqui Lambie's "blackmail" tactics on the issue.
Senator Lambie, a former soldier, had vowed to vote against all government legislation until a better pay offer was made to soldiers.
In his second attempt to appease the Defence community and Senator Lambie, who wields a crucial vote in the Senate, Mr Abbott announced on Wednesday his government had decided to increase Defence pay above inflation - from the proposed 1.5 per cent increase to 2 per cent per year, beginning next pay day.
The Prime Minister said it showed his government was listening to voters.
"It is still frugal government but it is frugal government that acknowledges the special place the Defence Forces have," Mr Abbott told reporters.
It will cost $200 million over the next four years and will be paid for via savings from within Defence.
The increased pay offer comes just one day after the Prime Minister announced 300 extra troops to help train Iraqi forces fighting Islamic State militants.
It also follows a sustained campaign against the original below-inflation offer by Defence and non-government parliamentarians, led most vociferously by Senator Lambie who made her vote in the Senate contingent on a better pay offer for Defence personnel.
Senator Lambie had been pushing for the defence pay rise offer to be increased to 3 per cent.
On Wednesday Senator Lambie said she would consult back in her home state of Tasmania before deciding on whether or not the pay offer is acceptable.
"I'm going to go back and consult with Tasmanians," Senator Lambie told reporters at Parliament House.
"I want to thank them for their stance behind me and what they have done with Defence Force personnel and they have allowed me to stand on this and I'm grateful to the people of Tasmania for the respect they show our Defence Force personnel."
Mr Abbott previously described Senator Lambie's tactic as a "form of blackmail", saying her tactics were not something "any sensible, mature government can submit to".
On Wednesday Mr Abbott said his decision to back down on the pay offer was based upon it being the "right thing to do".
Mr Abbott said he had not spoken with Senator Lambie since deciding on the new offer.
"I obviously appreciate Senator Lambie's position, I respect Senator Lambie's position because as a former member of the Australian Defence Force she obviously has a keen interest herself in the outcomes that are delivered by government for our Defence Force personnel," he said.
