The party said the starting salary of an army private has dropped by £1,000 in real terms since 2010 because of Government policies.
Pay caps have become a key political battleground after the Government signalled public sector wage review bodies would have more flexibility in future, after the police and prison officers were granted settlements above the 1 per cent limit.
But Labour insisted the move still amounted to a pay cut due to inflation levels, as the party called for a better deal for all public sector workers.
Labour leader Jeremy Corbyn said: “This cruel pay cap is putting real pressure on forces personnel and their families. Along with rising rents in service accommodation and changes to tax credits, this Government is trying to balance the books on the backs of our servicemen and women.
“This sorry state of affairs cannot be allowed to go on. It is high time for the Government to do the right thing and give our armed forces a pay rise.”
Labour’s shadow defence secretary Nia Griffith said: “Armed forces personnel have been leaving in droves, because this Government stubbornly refuses to reward their service with a proper pay award.
“We now have a real crisis in recruitment and retention across all three services. If this Government were serious about addressing this it would scrap this harsh pay cap immediately.
“As well as doing the right thing by our servicemen and women, this is also about securing Britain’s defence capabilities by ensuring that our armed forces continue to attract and retain the brightest and best.”
The Commons move by Labour on Thursday to boost armed forces pay comes after MPs backed a call for an end to the public sector pay cap for NHS staff.
On Wednesday, the Government chose not to contest a non-binding motion by the party on the issue rather than face an embarrassing defeat.
The Government did not risk a vote on the Labour motion as their DUP allies made it clear they would side with the opposition.