A Treasury analysis said that all but the top 10% of earners saw a real terms increase in 2012/13.
But both Labour and the Institute for Fiscal Studies (IFS) accused the Coalition of ignoring cuts to in-work benefits, such as tax credits and child benefit.
Paul Johnson, from the IFS, said: "If you are looking at household incomes, that will be different from what's happened to take-home pay."
Shadow Treasury minister Cathy Jamieson said real wages had fallen by more than £1600 a year under the coalition.
The row comes as the Tories attempt to neutralise Labour's claim that the UK is suffering a cost-of-living crisis.
Business minister Matt Hancock acknowledged that people were still worse off than they were before the 2008 financial crash.
But he said yesterday's analysis - based on figures from the Office of National Statistics - showed things were "starting to turn".
"Put them together with the very good jobs figures, with the record rise in the number of jobs that we had this week, with the fact the deficit is coming down - put all these things together and we can see that the economic plan is starting to work and helping to make people's personal finances more secure."