Outspoken senator Jacqui Lambie has rejected the government's reported defence pay backdown, saying she won't be taking any prisoners in her "all or nothing" crusade.

The government's offer of a 1.5 per cent annual pay increase has been criticised for being below inflation by defence welfare groups, Labor and Senator Lambie.

While the pay offer will stand, Prime Minister Tony Abbott is expected to back down and reinstate Christmas leave entitlements, News Corp Australia reports.

The concession won't satisfy Senator Lambie, however, who has previously vowed to vote against all government legislation in the Senate until Defence personnel get a fair pay rise.

She confirmed on Sunday that she would continue her fight on behalf of the ADF during the last parliament week of the year.

"It's all or nothing on the ADF pay deal. I'm not going to take any prisoners. It's time to empty the magazine, fix bayonets and charge," she said on Sunday.

"It may be a small battle win, but I'll not be satisfied with any result short of a total victory in the ADF fair pay war."

Senator Lambie had been due to hold talks with Mr Abbott on Monday, but her office says that meeting has now been cancelled.

Labor leader Bill Shorten also rubbished the compromise.

"I see reports that Tony Abbott is considering a half-hearted, half-baked, too little, too late response on the defence force pay," he told reporters in Melbourne on Sunday.

Defence wages had to keep up with the cost of living, he said.