Governors have given nurses a week to return to work or face sacking.
They described the industrial action as illegal.
The decision, announced by Council of Governors (CoG) chairman Josphat Nanok, was agreed on by the county bosses on Thursday.
The governors' meeting was the climax of many that involved officials of the Kenya National Union of Nurses (Knun) in a bid to end the strike that has paralysed services at public hospitals for 89 days now.
The health workers are demanding the recognition of their collective bargaining agreement (CBA).
Mr Nanok said: "The nurses went on strike while the negotiations on their CBA were taking place. They acted in bad faith."
Mr Nanok, who is also the Turkana governor, said the CBA could not be honoured due to "budgetary constraints".
In June, governors presented to the Salaries and Remuneration Commission (SRC) a proposal for the national government to provide Sh40.3 billion, but it was rejected.
The SRC dismissed the Sh20,000 the nurses sought as a health risk allowance. It proposed the figure be reduced to Sh5,000.
Mr Nanok said he had consulted the SRC and it was felt that "the CBA, as demanded by the nurses, cannot be implemented in its current form".
At the same time, Knun deputy general-secretary Maurice Opetu told the Nation that the council had not communicated formally with them about its latest decision and vowed that they nurses would not report for duty until their demands are met.
DROPPED SOME DEMANDS
The nurses said they had dropped some of their demands, including responsibility and call allowances, but Mr Nanok insisted that the health workers had refused to budge.
Mr Nanok said if the workers obey the governors' directive, "there will be no victimisation of the nurses who participated in the strike, and counties will withdraw all show-cause letters issued before this date and pay all outstanding salaries".
He said those who return to work will have their jobs re-evaluated as CBA negotiations continue.
Mr Nanok called on the nurses to allow the current group of governors to settle into office before they "can resume the negotiations".
He said the governors agreed to advertise job openings, with nurses getting the chance to apply and indicate where they want to work and be hired on a contract basis.
The feasibility of hiring new staff remains questionable because Kenya faces a chronic shortage of nurses, with only 33,000 of the caregivers in employment.
This was the first CoG meeting since the election of the governors.
The management of health by governors since devolution has resulted in perennial strikes over transitional and human resource grievances.