The increase will in effect give Ms Spottiswoode, 42, an increase of pounds 20,000 on her original salary of pounds 70,000 in autumn 1993.
After increases in April 1994 and April 1995, the Ofgas director-general's salary had reached pounds 73,725 before the latest rise, which is backdated to November 1994.
Mr Heseltine's disclosure of the move in a Commons written reply sparked Labour fury. Brian Wilson, the party's trade and industry spokesman, said: "There is no justification for the regulator being allowed to join in the privatisation pay trough."
Ms Spottiswoode was said to have been asking for a rise to about pounds 110,000 to reflect her extra workload and to bring her pay into line with that of other public service regulators.
Defending the increase, Mr Heseltine said: "I believe that over all the proposed changes in Ms Spottiswoode's remuneration are reasonable and fair in terms of both the changes to her own job and the remuneration of other regulators."
He acknowledged that the gas Bill, introducing competition in domestic gas supply, would "substantively increase" her responsibilities and workload.
"Apart from the licensing of new domestic gas suppliers, shippers and gas transporters, she is being given new powers under the Competition Act in respect of the industrial and commercial gas market. She is also taking over the Department of Trade and Industry's responsibility for regulation of gas meters and gas quality."
He said Ms Spottiswoode would be allowed to take on one additional non- executive directorship, involving an annual commitment of no more than 12-20 days. She previously had been permitted to hold two non-executive directorships.
Mr Heseltine stressed: "I shall need to be satisfied that the appointment will not prejudice the performance of her functions as director-general."
But Mr Wilson complained: "Ms Spottiswoode knew the rate for the job when she accepted it. Her pay rise will sicken the consumers she is supposed to be protecting."