Treasurer Josh Frydenberg says the drop in the unemployment rate is a further sign the government's economic recovery plan is working.
The unemployment rate unexpectedly dropped to 5.6 per cent prior to the JobKeeper wage subsidy ending in March.
This followed an equally surprising decline to 5.8 per cent in February.
The Australian Bureau of Statistics said the number of people employed in March rose by 70,700, more than double what economists had been expecting.
"The Morrison government's economic recovery plan is working," Mr Frydenberg tweeted.
While full-time employment fell by 20,800 in the month, part-time employment jumped by 91,500.
The participation rate of those in work or actively seeking employment has also risen to a record high of 66.3 per cent, up from 66.1 per cent in the previous month.
Across the states, Queensland and WA led the rise in jobs with both states now operating well above their pre-COVID levels, BIS Oxford Economics' Dr Sarah Hunter said.
"The recovery in mining investment and, in Queensland's case, an increase in interstate migration have resulted in their economies out-performing the rest of the country," she said.
NSW, Victoria and SA have seen employment plateau at or below their pre-COVID levels, mainly due to a lack of international students and the tourism downturn.
Any impact from the end of JobKeeper will start to be seen from the April figures, which are due on May 20 - the week after the federal budget.
More than one million people were estimated to still be on JobKeeper in the first three months of the year.
Treasury has forecast as many as 150,000 could have lost their job as a result of the wage subsidy ending.
However, demand for workers has been extremely strong, suggesting the momentum of the rebound from last year's recession may be sufficient to absorb any JobKeeper-related job losses.
Just this week, preliminary figures from the National Skills Commission showed vacancies posted on the internet soared to a 12-year high in March following a huge 19.1 per cent increase in the month.
Other forward indicators of employment growth have been equally robust.
Business conditions also struck a record high in March, and solid forward orders suggest activity is set to grow further in coming months, a positive for future hiring intentions.
At the same time, consumer confidence has struck an 11-year high, an indication that households could be keeping retailers busy.
Australian Associated Press