Prime Minister John Key says people should not panic over the latest rise in unemployment, which has pushed the rate to its highest level in a decade.
Statistics New Zealand's household labour force survey shows that unemployment jumped from 6.5% at the end of September to 7.3% at the end of December.
That is 18,000 more people out of work - double the Labour Department's forecast of 9000.
The total number of New Zealanders recorded as out of work in the December quarter is 168,000.
Mr Key says unemployment always lags behind the real economy and there are encouraging signs that the outlook is improving. He says it is likely the unemployment rate is now close to its peak and is confident it will fall this year.
The Prime Minister says the data shows that, rather than losing jobs, the economy is not creating new jobs fast enough.
But the Labour Party says the latest jump in unemployment is a shocking indictment of Mr Key's failure to look after New Zealand families.
Labour leader Phil Goff says the latest data shows that last year's Jobs Summit was an ineffectual talkfest, the Government has no plan for jobs and its economic policies have failed miserably.
Mr Goff says unemployment is growing at the fastest rate in a decade and is now almost 2% higher than in Australia.
'Unexpected' rise in number of young job-seekers
Employment Minister Paula Bennett says there was an unexpected rise in the number of young job-seekers, which was not factored into forecasts.
On the positive side, she says, in the past few weeks more people have gone off the unemployment benefit than have signed on.
ASB Bank chief economist Nick Tuffley says the rise reflects an increase in the working-age population and the fact that people are feeling more confident about their chances of finding work: 16,000 more people re-entered the labour market but were unable to find jobs.
Industries dominated by men suffer most
Unemployment has affected the same groups as during previous recessions, with the young, Maori and Pacific Islanders hard hit.
Male unemployment has risen much faster than female unemployment. Industries dominated by men, such as construction and manufacturing, suffered the most.
The number of people in employment shrank 0.1% to 2.15 million, while the number of hours worked also declined.
The participation rate, which measures the proportion of people actively looking for work, fell slightly from 68.4% to 68%.