Downing Street made clear that the 1 per cent limit on rises, which has been in force since 2010, will be abandoned this Autumn.
The government is also set to loosen the purse-strings on spending on key public services - with taxes likely to rise to help fund the boost.
The signal from No10 comes after a series of ministers and Tory grandees broke cover to question the future of the restrictions.
Defence Secretary Sir Michael Fallon said ministers were 'considering' the pay cap amid growing signs of a change in approach to austerity.
Cabinet colleague Chris Grayling also fuelled speculation by saying the government was determined to 'learn the lessons' from the bloody nose suffered by the Tories at the election.
It is thought that Mrs May intended to make clear her intention to ease the pay cap at PMQs in the Commons today - but was not asked about it. The restrictions had been due to stay in place until 2020 as part of efforts to eradicate the deficit.
A senior Tory source said: ‘Ministers including the PM and Chancellor have been clear we are going to listen to the messages sent at the election.
‘We understand people are weary after years of hard work to rebuild the economy.’
He added: ‘It is vitally important we balance the books and live within our means so future generations are not paying for that.’
Tory grandee Oliver Letwin said taxes should rise to meet voters' demands for an easing of curbs on public spending.
Sir Oliver, one of the architects of the Coalition's austerity measures, said 'carefully judged' measures to raise revenue would allow the government to 'ease up' on restrictions.
But he warned that while the rich would bear much of the burden there was no way to avoid asking 'large numbers' of people to pay more.
In a speech at the Royal United Services Institute this morning, Sir Michael was asked whether defence budget increases would include a rise in wages.
Inflation is currently running at 2.9 per cent on the CPI measure - way above the 1 per cent public sector pay cap.
'That is obviously a huge question,' he said. 'It's partly a matter for the pay review bodies but it also involves a forecast of where you expect inflation to be.
'I think we expect inflation to start falling back again from the autumn onwards.'
He added: 'But it is obviously something we have to consider not just for the army but right across the public sector as a whole.'
The comments reinforce speculation that the government is preparing for an overhaul in its approach, after the election uncovered growing anxiety about the strain on the NHS and other services.
In the aftermath of the election, which saw voters strip the Conservatives of their overall majority, Chancellor Philip Hammond admitted that the public was tired of the 'hard slog' after seven years of austerity.
Labour will seek to increase the pressure on Theresa May this evening by tabling an amendment to the Queen's Speech demanding an end to the public sector pay cap and recruitment of more police and firefighters.
With the support of the DUP's 10 MPs, there is no real prospect of the amendment being passed - and the signal on the cap should encourage Tory MPs to toe the line.
Asked about the pay cap, Mr Grayling told the BBC today: 'Philip Hammond has said we obviously have to learn lessons from the general election.
'We will have a budget later this year. He will set out our ongoing plans in that budget.
'Now is not the time or the place, in the Queen’s speech debate, to start setting out plans for the economy. That is what budgets are for.'
Sir Oliver told BBC Radio 4's Today programme it was clear on the doorstep during the election campaign that people were concerned about 'spending on schools, spending on health, spending on social care.
He insisted that the government could not step back on its determination to keep tackling the deficit.
But Sir Oliver made clear that he believed raising tax to increase spending was now a serious prospect.
He said the better-off could 'bear a larger share of the cost' as they had done under the coalition, but dismissed Labour's claims that tax rises could be limited only to companies and the very rich.
'It may well be that, in one way or another, a large number of people will have to pay a little more tax if we are going to maintain the trend towards reduced deficits and yet spend a bit more on the crucial public services that do need more spending,' he said.
Sir Oliver also suggested the public sector pay cap will soon need to be rethought .
'I think sooner or later there will need to be some movement on the rate of increase of public sector pay because we are getting close to the point at which the huge increase in public sector pay compared to private sector pay which we inherited in 2010 is levelling out.
'And I have no doubt that at some point or other we will need to look at that.'
The British Social Attitudes study found 48 per cent of people believe the government should raise taxes and spend more, and their numbers overtook those who want taxes to stay as they are last year.
It is the highest figure detected since 2004 - although support has been much higher in the past.
The influential independent annual survey is produced with the backing of a series of Whitehall departments.
The report said the move towards tax-and-spend reverses public sentiment in favour of low taxation that developed during Tony Blair's high-spending years in power and lasted throughout David Cameron's premiership.
It helps to explain the failure of Theresa May's election campaign, which did not try to counter opposition calls for higher public spending by defending Tory economic successes since 2010.
Among the report's editors is Professor John Curtice, the pollster whose television exit poll predicted the Tory failure to win a Commons overall majority with spectacular accuracy.
Based on in-depth questioning of nearly 3,000 people, it found that 48 per cent said they wanted higher taxation to pay for more spending on health, education and social benefits. The last time support for higher taxes was found to be so high was in 2004.
Some 44 per cent want taxes to stay the same, and just four per cent say they want them cut, the report found.
'There are clear signs of increased support for a government that is more generous with its spending and a growing public willingness to pay for it,' the report said.
'The last seven years have been ones of relative famine so far as public expenditure is concerned. It appears that gradually the public are beginning to react against that experience, as reflected in declining support for cutting expenditure as a way of helping the economy and some increase in support for spending on public services.
'The call for more spending is still well below what it was by the late 1990s, but it looks as though the tide may at least have begun to flow back in that direction.'
The report said that high employment levels may have contributed to a fall in public support for spending money on helping the unemployed. Backing for higher spending on unemployment benefits has more than halved since 1996, from 33 per cent to 16 per cent.
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