The unemployment rate dipped to 5.4% in April from 5.7% in March, as companies grappling with the recession held on to workers in anticipation of a recovery.
Economists had expected the rate to hit 5.9%, according to Bloomberg.
Today's result is the strongest since last July, before the global financial crisis accelerated.
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"Defying expectations, the Aussie economy added jobs in April and the unemployment rate went down,'' said Moody's economy Economists Matt Robinson. "It's a damn good result.''
Full-time jobs surged by 49,100, easily eclipsing the 21,800 jobs lost during the month, the Australian Bureau of Statistics said. The net gain was 27,300 jobs.
The largest fall in unemployment was in NSW, where the rate dropped to 6.0% in April from 6.8% in March, following a spike from 5.9% in February.
The Australian dollar jumped on the news, gaining half a US cent in recent trade and the sharemarket also extended its advance.
Despite the healthy take on the labour market, unofficial forecasts put the unemployment rate as high as 9% by the end of 2010 once the full effect of the downturn filters through the economy.
The Government will give its own estimate for unemployment - expected to exceed 8% - when it releases the Federal Budget next week.
However, today's strong unemployment figure "is going to leave a lot of people gobsmacked,'' Mr Robinson said.
He said it was possible that employers with long memories of a tight labour market only a year ago had been "trying desperately hard not to lay off staff because those quality people will be the most productive in an upturn''.
"You've got to take your hats off to policymakers, both government and the central bank, that have taken aggressive actions that look as if they're working,'' he said.
Since the acceleration of the global financial crisis late last year, the Federal Government has announced $78 billion in stimulus packages and spending aimed at keeping people spending and the economy cushioned from a hard landing.
The unemployment rate went down without a noticeable drop in the participation rate, Mr Robinson said.
The participation rate, or a how much of the population is available for work, eased by 0.1 percentage point to 65.4% in April, the Australian Bureau of Statistics data showed.
Hope on horizon
The better-than-expected reading on the jobs market comes in the same week that strong retail sales and trade surplus figures were released, raising hopes for an economic revival.
Retail sales jumped 2.2% in March as consumers spent $19.3 billion for the month, the ABS said yesterday, an increase most economists linked to the government's stimulus packages.
Also, the trade surplus increased to $2.5 billion in March, showing that demand for Australian resources remained relatively strong despite the slowdown.
"The Chinese economy in particular has picked up speed in recent months and many commodity prices have firmed a little,'' the Reserve Bank said on Tuesday, while keeping rates on hold at 3%.
Strong demand for commodities is crucial to the Australian economy's health, accounting for a substantial proportion of revenues.
Breathtaking
ICAP economist Adam Carr said the April jobs figures were "breathtaking " even as he cautioned about the volatility of the statistic.
"The labour force numbers are dodgy at the best of times but what we can safely say from these numbers is that the extent of the rising unemployment rate is probably being exaggerated.''
"Australia is obviously in a downturn, but clearly it's going to be a lot more mild than we've heard in some quarters.''
RBA governor Glenn Stevens declared the nation in a recession last month after the Australian economy shrank 0.5% in the final three months of 2008.
"There was a big fall last month and I think this is just correcting for that,'' Mr Carr said.
"Businesses are smart and realise the downturn isn't going on for a long time ... they are keeping staff on for preparation for the recovery.''
The biggest losers in the recession will be companies that sack staff before an upturn, he said.
In another hopeful sign, an index of construction eased for the second consecutive month, offering hope for the hard-hit sector.
The Australian Industry Group-Housing Industry Association performance of construction shrank to 36.5 index points in April, a 6.2 point improvement from March.
Interest rates
Stronger jobs numbers set well with the RBA's decision to keep rates on hold at the 49-year low of 3% this week.
"These data will feed market expectations the RBA is done in cutting rates,'' RBC Capital Markets senior currency strategist Sue Trinh .
"Especially following the strong retail sales and trade surplus numbers yesterday.
"We expect the RBA will be pretty happy with their steady verdict earlier this week.
"Though they have left the door open for further rate cuts later this year if needed, it will more than likely be deterioration in global activity (or a) relapse in risk appetite that prompts the RBA to cut below 3%.
"They are clearly in no great hurry to do so.''
State by state
The unemployment rate in Victoria held steady at 5.6% in the same period, the ABS said.
Queensland's unemployment rate ticked up 0.1 of a percentage point to 4.9%, while fellow mining state Western Australia experienced a decline, with unemployment falling to 4.5% in April from 4.9% in March.
South Australia's jobless rate dropped to 5.5% in April, seasonally adjusted, from 5.9% the previous month.
Weakness in the Tasmanian labour market resulted in a rise to 6.2% in the month, from 4.4% in March.
czappone@fairfax.com. au
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