Cabinet approved the cuts, which will hit workers already struggling after more than four years of deep recession, as it signed off on a series of steps agreed in principle by Parliament last week, a government official said.
The move, which will pass into law without the need for further parliamentary approval, imposes a 22-percent cut on the standard minimum monthly wage of 751 euros. For those under 25, the cut will be even more brutal, a 32-percent reduction.
In addition, it will impose a public-sector wage freeze until the unemployment rate, currently 21 percent, falls below 10 percent.
As the legislative process underpinning Greece's budget commitments grinds into gear, Prime Minister Lucas Papademos is to meet European Commission President Jose Manuel Barroso on Wednesday ahead of a European summit on Thursday and Friday.
Greece has been under heavy pressure to take swift action following a series of unfulfilled pledges over the past two years to cut spending and reform its shattered economy.
But there has been growing concern that the repeated cuts will stifle any hope of recovery and make it impossible to cut a public debt burden of 160 percent of gross domestic product.
"The European Union has already realized that we cannot move on only with austerity. We need growth," government spokesman Pantelis Kapsis told a talk-show on Mega television.
PAINFUL MEASURES
Later on Tuesday, Parliament was due to approve some 3.2 billion euros in spending and pension cuts, kicking off a series of votes on the austerity package this week.
The measures, which will slash 400 million euros from the defense budget, cut ministries' operating costs by 15 percent and take 386 million euros off pension spending, are aimed at bringing Greece's 2012 deficit to 6.7 percent of GDP.
As a result of the cuts, monthly pension payments above 1,300 euros will be reduced by 12 percent. In addition, so-called supplementary pensions, which are paid for out of workers' own contributions, will be slashed by up to 30 percent.
Athens, gripped in icy winter weather, has been largely quiet since violent protests against the austerity measures exploded earlier this month but a series of smaller protests and strikes are planned later in the week.
Underlining the threat still hanging over Greece, ratings agency Standard & Poor's on Monday cut its long-term debt rating to "selective default" following a bond swap deal last week that imposes compulsory losses on investors.
The European Central Bank was forced to offer emergency help to Greek banks after the downgrade, which stops them from using Greek bonds as borrowing collateral, although Athens says the move by S&P was expected.
"There will not be any impact on the functioning of the economy," said an official, speaking on condition of anonymity.
