Foxconn, which assembles products for US-based Apple, will increase the monthly salary for its assembly line workers in Shenzhen by nearly 70 percent to 2,000 yuan (290 dollars) from October 1, a spokeswoman said.
"The wage increase will reduce overtime work as a personal necessity for some employees and make it a personal choice for many workers," Foxconn said in a statement.
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The announcement came after a series of suspected suicides at the firm's Shenzhen plants, which led to reports of long work hours under sweatshop-style conditions, setting off protests in Hong Kong and Taiwan.
Ten workers at the giant Foxconn facilities in Shenzhen have fallen to their deaths this year while an 11th worker died at another factory in northern China. Another worker died last month, with labour activists alleging that he had succumbed to exhaustion.
Foxconn, the world's biggest computer components maker which also makes products for Dell and Nokia, only last week hiked pay for its Chinese assembly line workers by 30 percent with immediate effect.
This followed criticism that its salaries were too low in Shenzhen, giving its staff no choice but to work overtime.
"The pay raise will put pressure on other companies that are currently cashing in on the cheap labour of China. The era of cheap Chinese labour is over," said Mars Hsu, a Taipei-based analyst with Grand Cathay Securities.
He estimated the pay raise for workers may boost monthly production costs by two billion Taiwan dollars (60 million US) for Hon Hai, Foxconn's mother company in Taiwan.
That would account for nearly one third of Hon Hai's profits, which totalled 17.9 billion Taiwan dollars in the three months to March.
Hon Hai Precision Industry Co plunged on the Taiwan Stock Exchange on news of the wage hike, ending down 5.62 percent at 117.5 Taiwan dollars.
At one point in morning trade, the company's shares fell by the seven-percent daily limit.
Its Hong Kong-listed shares were suspended ahead of the announcement and had fallen 5.5 percent to 5.66 Hong Kong dollars in the morning.
Foxconn's 59-year-old founder Terry Gou, one of Taiwan's best-known entrepreneurs, said the wage rise was meant to "safeguard the dignity of workers".
"We recognise our responsibility as a global leader in electronics manufacturing, and take this responsibility very seriously," he said in the statement.
Foxconn said salaries at plants in other parts of China would be calculated based on local prices and social security requirements.
Labour activists welcomed the rise but said it was still not enough.
"The basic salary the company offers to its workers remains short of the minimum needed," said Chu Wei-li, head of Taiwan's National Federation of Independent Trade Unions.
A worker living in Shenzhen and sending part of his money back to his family elsewhere in China needs 2,293 yuan, a survey by Hong Kong-based Students and Scholars Against Corporate Misbehaviour showed.
Apple chief executive Steve Jobs last week defended conditions at Foxconn, saying it was "not a sweatshop".
"You go in this place and it's a factory but, my gosh, they've got restaurants and movie theatres and hospitals and swimming pools. For a factory, it's pretty nice," Jobs told a conference in California.
Allen Lin, an analyst at Taipei's Concord Securities, said Apple might help Foxconn get over difficulties caused by the wage hike by passing some of the extra costs on to consumers.
"As part of such efforts, Apple is likely to alter its pricing strategy. Apple has so far tended to lower prices after its products have been on sale for a while," he said.
