Ministers say the introduction of a recommended upper limit should include a "fair, robust, appropriate approval mechanism" which would allow schools to pay more when needed to recruit or retain staff.
The development comes just months after education secretary Michael Gove said he wanted to limit heads' pay to the prime minister's pound;142,500 salary. He was thwarted in his attempt to bring the move into effect from last September, but has been pursuing it again in recent months.
However, in a submission to the School Teachers' Review Body, which advises the Government on pay, Mr Gove has stepped away from a cap that cannot be broken.
His evidence highlights concerns in the recent Hutton review of public sector pay, which said pegging senior salaries to that of the prime minister could damage the ability to recruit top staff.
Mr Gove is now recommending that top heads get no more than 25 per cent above the top of the official pay scale, which would limit pay to pound;140,226 in inner London. Schools wanting to employ the get-out clause to pay more would need to have their offer officially approved.
Mr Gove will anger some heads with another proposal that "additional payments" earned by heads for extra work, such as advising other schools, should be included in the new wage limit. He also wants to restrict these payments to 25 per cent of total salary to prevent heads of smaller schools earning disproportionate amounts of money.
The plan comes following the revelation that Mark Elms, head of Tidemill School in south London, earned pound;102,000 for two years' work on the City Challenge programme, in addition to his relatively modest basic salary of pound;82,700 in 2009.
Brian Lightman, general secretary of the Association of School and College Leaders, said: "Heads have a huge sense of vocation and it's not just about money, but there is no reason they shouldn't be paid for the job they are doing, which has unprecedented levels of accountability and responsibility."
The Government's submission claimed an "uplift" of 25 per cent of basic salary should be enough to recruit heads to take charge of more than one school.
The document also points out that primary and secondary heads already have the highest wages of 29 European countries relative to GDP.
Russell Hobby, general secretary of heads' union the NAHT, said the Government needed to put in place a transparent system that was easily understood by teachers and the public. "We need to get the procedures for fixing pay right. It will be good for the profession to be seen to be above board," he said.
UNQUALIFIED STAFF - pound;250 BONUS
The 6,800 unqualified teachers on the bottom three points of the pay scale should receive a pound;250 annual "bonus" during the pay freeze starting in September, the Government has said. Official guidance says it should be given to all those earning under pound;21,000, not including London weighting.