The Northern Territory government has abandoned a controversial public sector pay freeze.

A wage freeze policy laid out by Chief Minister Natasha Fyles' predecessor, Michael Gunner, had been slammed by unions and the Country Liberal Party opposition.

Much of the general public service agreed to the wage freeze last year, but there was strong pushback from teachers and prison officers, who did not sign their agreements and went on strike last month.

The government announced this week that public servants will now receive a two per cent annual increase, including workers who were covered by enterprise agreements in which they were offered lump sum bonuses in exchange for frozen wages.

Politicians will not receive a pay rise, the NT Government said in a statement. 

“It will have an impact on the budget, but I can't give you a global figure because we need to negotiate each agreement, and each agreement has various options within it that will have different financial outcomes,” she said. 

“What I can assure Territorians is we take the responsibilities of running the Northern Territory government budget very seriously - we are aiming still to get to an operating surplus.”

Unions NT secretary Erina Early said; “The chief minister has listened to the union members and agreed that public sector workers deserve better”.

“We have the won the battle to lose the freeze and now our members can now properly negotiate their conditions of employment,” she said. 

The government says its treasury is forecasting a $1.4 billion improvement to the budget over the next four years.