The Palestinian government on Tuesday approved a minimum wage of 1,450 shekels ($376, 290 euros) a month for the private sector, labour minister Ahmed Majdalani said.
"This is an unprecedented decision... on which we can build," Majdalani told AFP, dismissing criticism that the rate was to low.
Responding to a call by Palestinian trade unions, scores of workers demonstrated outside the parliament building, chanting: "The poor do not agree with Fayyad."
Tuesday's vote also set a daily private sector minimum wage of 65 shekels ($16.80, 13 euros) and an hourly floor of 8.5 shekels ($2.20, 1.7 euros). It is the result of recommendations made by a committee of government and trade union officials and employers' representatives, after 18 months of discussions.
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Shaher Saad, head of the Palestine General Federation of Trade Unions, said that the low minimum would "further encourage the exodus of Palestinian labour to Israeli settlements and abroad."
But the head of the General Union of Palestine Workers, which is linked to the Palestine Liberation Organisation (PLO), hailed the move as "a historic day for Palestinian workers."
"We agreed to a minimum wage, given the fact that this is the first time in Palestinian history," Haidar Ibrahim told AFP. "It is to be reviewed in a year."
Ibrahim said that the Palestinian private sector employs about one million people including "nearly 100,000 workers earning between 400 and 700 shekels ($104-$181, 80-140 euros) per month."
The Palestinian Authority, which governs the autonomous areas of the West Bank has lately been facing mounting social discontent driven by mounting inflation, especially higher fuel prices.