England's Zurich Premiership clubs will each operate with a £1.91million salary cap next season.
The 3% increase was tonight confirmed by Premier Rugby.
"The squad cap has been tremendously successful since its introduction, and has been a major factor behind the clubs taking further steps towards financial viability," said Premier Rugby chief executive Howard Thomas.
"However, certain allowances in the squad cap had got out of control in terms of the materiality of the squad cap, and amendments were required to ensure the cap achieves its original intention."
Premier Rugby has also announced squad cap amendments to compensate clubs for loss of international players during the World Cup later this year.
Premiership clubs whose players are selected for the final national playing squad of a country involved in the tournament, will be compensated by being able to deduct a financial allowance per player from the total squad cap for the 2003/04 season.
For every international player who is involved in the World Cup, the relevant club can exclude a set financial amount per week for an 11-week period, even if that player's country is knocked out of the World Cup and he is available to play for his club.
The allowance will also apply for players who are called up to their national side during the World Cup.
The number of players allowed to be registered in a club's squad from next season is 43, at least 10 of whom must be academy players.
And a new £100,000 squad cap will be introduced specifically for junior players who are part of the club's academy scheme, taking the overall squad cap to £2million per club.
"We are still a very young sport, and would not survive without a sensible approach to player salary spend," Thomas added.
"The squad cap is linked to central revenue, so as this continues to grow, so too will the squad cap."