Kenyan President Mwai Kibaki has blocked an attempt by lawmakers to grant themselves bonuses of $110,000 each.
Kibaki said in a statement that he will not sign into law a bill that would have granted the added pay to all 222 members of parliament before they step down ahead of general elections in March.
Parliament passed the bill quietly last week but news of the move sparked protests in Nairobi on Tuesday.
President Kibaki said the extra pay for lawmakers is not only unconstitutional but untenable given the country's economic circumstances.
Kenyan lawmakers recently approved pay raises for teachers and doctors after they went on strike for three weeks in September.
Analysts say the lawmakers' proposed bonus was equal to 60 years pay for a Kenyan worker making minimum wage.
Kenyan lawmakers are already some of the best-paid in Africa, earning more than $120,000 per year.
Some information for this report was provided by AP, AFP and Reuters.