The jobless rate jumped to 4.3 per cent in September with only a paltry 2,200 jobs added to the national workforce.
The economic slowdown appears to be showing signs of hurting the labour market with the seasonally-adjusted rise in the unemployment rate coming after a surprise fall to 4.1 per cent in August.
The small number of additional people employed reflected a 15,400 drop in full-time employment, while part-time jobs rose by 17,700.
Economists had expected the level of employment in September to be unchanged from August leading to a jobless rate of 4.3 per cent.
The economic slowdown is expected to put further pressure on the jobs market with the Reserve Bank of Australia's (RBA) having predicted a jobless rate of around five per cent during the next year or so.
Still, this week's surprise one percentage point interest rate cut by the central bank is aimed at avoiding a bigger contraction in economic growth against the backdrop of the global financial crisis.
Financial markets are predicting further official rate cuts in coming months.
The rise in the national jobless rate included an extraordinary jump to 5.7 per cent in South Australian unemployment, from just 4.4 per cent the previous month.
The boom states of Queensland and Western Australia also suffered.
In Queensland the jobless rate rose to 3.7 per cent from 3.3 per cent, while in WA it rose to 3.0 per cent from 2.7 per cent.
In Victoria the rate rose to 4.4 per cent from 4.3 per cent and in the ACT it increased to 2.9 per cent from 2.8 per cent.
But unemployment has fallen elsewhere.
In NSW the jobless rate fell to 4.8 per cent from 4.9 per cent; in Tasmania it eased to 3.8 per cent from 3.9 per cent and; in the Northern Territory it declined to 2.6 per cent from 2.8 per cent.