Under the deal, the public sector wage bill will rise by around EUR 148m in 2016 compared to this year, a figure that suggests the two sides met roughly half-way.

Public Administration Minister Boris Koprivnikar said the figure was "on the border of what is possible" but would not "break the budget".

Branimir Štrukelj, the unions' chief negotiator, said things were "gradually changing for the better" despite the continuation of austerity measures.

The deal stipulates that wages will return to the level of 2013, while the annual holiday allowance will increase.

Promotions, which have been more or less frozen for years, will be partially relaxed.

The gradual suspension of the remaining austerity measures for the period 2017-2019 will be agreed in new talks set to begin early next year.

Štrukelj said this was important since it means things remain open for the coming years. "We are confident the government will be constructive in these talks."

The agreement, which is expected to be formally signed on Tuesday pending approval by individual unions, averts an automatic pay hike that would take effect as of 2016.

The measures in the focus of the talks were temporary pay restraints that would automatically expire at the end of the year.

In the absence of an agreement the public sector wage bill would have surged by over EUR 400m next year, which would have derailed the government's deficit targets.