Whitehall mandarins must be paid more to put an end to secretive deals that enable them to avoid paying tax, it has been claimed.
Jonathan Baume, general secretary of the First Division Association (FDA) which represents senior civil servants, said pay among the highest-ranking staff needed to be more "transparent", claiming the current situation was "a shambles".
The call comes after it emerged that salaries totalling more than £4 million for 25 Whitehall "contractors" were paid through limited companies, a method that allows tax bills to be reduced.
And last month Danny Alexander, Chief Secretary to the Treasury, launched a review into the practice after it was revealed the Department for Business, Innovation and Skills had allowed a similar salary deal to go ahead for Ed Lester, the chief executive of the Student Loans Company.
Mr Baume claimed that the problem stemmed from the last years of the Labour government when ministers wanted to attract top individuals working in the private sector but could not offer them salaries which compared favourably.
He said: "What we have found is that in certain cases, because the market rate was so much greater than the salary that would have been offered in the civil service, various deals were being done and some of these are now being exposed.
"So I do think we now need to be very transparent and very clear that this cannot continue but at the same time grasp the very difficult political nettle, which is to address the problem of pay at senior levels of the civil service. Frankly, it's a shambles... ministers are going to have to raise the salaries."
The comments are likely to annoy ministers and backbench MPs. Earlier this week, the coalition launched a review of public sector bonuses following anger over payouts at bodies such as the Royal Bank of Scotland. Mr Alexander and Cabinet Office minister Francis Maude have written to all Government departments asking them to examine their reward structures as part of a clampdown on excessive bonuses.
The payments through arm's-length companies made to people employed by the Department of Health amounted to more than £250,000 a year, plus expenses, for some individuals, according to the Guardian.
Officials apologised for any "misunderstanding" over the salaries after health minister Simon Burns told Parliament in a written answer last year that no Whitehall health staff were paid in that way. The department insisted the definition of staff referred only to civil servants and not the "contractors" involved.