Jeremy Corbyn urged Theresa May to “take a check with reality” as he warned low pay is a threat to an “already weakening” economy.
Labour MPs could also be heard shouting “Give them a pay rise” after the Prime Minister praised the emergency services for their response to the recent terror attacks.
Mr Corbyn also prompted Tory MPs to shout “Look behind you” after he criticised Cabinet “bickering and backbiting”.
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Mrs May accused the Labour leader of “always talking Britain down” as she defended her approach to public sector pay, which includes a 1% cap.
Public sector pay featured heavily in the final Prime Minister’s Questions before the summer recess, with Mr Corbyn highlighting reports that Chancellor Philip Hammond told a Cabinet meeting that public sector workers are “overpaid” when their pensions are taken into account.
He jokingly asked Mrs May if she believed Mr Hammond was referring to her own ministers, before telling MPs: “The Conservatives have been in office for 84 months - 52 of those months have seen a real fall in wages and income in our country.”
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Mr Corbyn quoted Mrs May’s pre-election pledge to ensure everyone would feel the benefits of a strong economy, asking: “Do you agree you cannot have a strong economy when six million people are earning less than the living wage?”
Mrs May replied: “I’ll tell you when you can’t have a strong economy, it’s when you adopt Labour Party policies of half-a-trillion pounds extra borrowing which will mean more spending, more borrowing, higher prices, higher taxes and fewer jobs.
“The Labour government crashed the economy, the Conservative Government has come in - more people in work, more people in jobs, more investment.”
Mr Corbyn countered: “Can I invite the Prime Minister to take a check with reality on this?”
Mr Corbyn said Mrs May’s talk of a strong economy “doesn’t remotely match the reality” millions of people face.
He added: “I look along that front bench opposite and I see a Cabinet bickering and backbiting while the economy gets weaker and people are pushed further in to debt.”
After shouts of “Look behind you” were heard and the heckling continued, Speaker John Bercow intervened and singled out Tory MP Nadhim Zahawi (Stratford-on-Avon) for “gesticulating in a distinctly eccentric manner”.
Mr Bercow added: “Shakespeare’s county deserves better.”
Mr Corbyn finished with an attack on the Government’s record, raising concerns about the economy and highlighting Brexit talks.
He said: “Isn’t the truth that this divided Government is unable to give the country the leadership it so desperately needs now to deal with these issues?”
Mrs May replied: “The reality is you’re always talking Britain down and we’re leading Britain forward.”
Tory cheers followed Mrs May’s final salvo in which she defended the Government’s economic record.