Recent online leaks showed some officials were receiving over 100 times more than an average public sector worker on about $400 (Â£305) a month.
The cap for government officials is now set for $2,630 and $5,250 for those in the mixed state-private sector.
Public anger has already led to the sacking of several bank directors.
One of them was paid about $60,000 a month, according to leaked payslips. However, it was not clear whether it was the director's monthly salary or total earnings, including a bonus.
Any payment beyond the new limits would now be seen as "a violation and crime", government spokesman Mohammad Bagher Nobakht said on Tuesday.
The row has also given conservative critics of President Hassan Rouhani new ammunition to attack him ahead of his likely bid for re-election next year.
The Iranian government says it will cap salaries of public officials after a row over the high level of pay of some employees.