The jobless rate rose to 6.9 per cent in September as Reserve Bank governor Philip Lowe fuelled expectations of an interest rate cut as early as next month.
The rise in unemployment came as 29,500 jobs were lost in the month, notably in Victoria where the state saw a further 36,000 people out of work as a result of the state's harsh stage four lockdown.
The national employment drop came after three months of exceptionally strong gains as COVID-19 restrictions were eased, recovering around 55 per cent of the steep job losses from when the country first went into lockdown.
"Bar for what we've seen in Victoria, we would have continued to grow the number of jobs in Australia," Prime Minster Scott Morrison told reporters in Cairns.
The jobless rate rise was smaller than the 7.1 per cent expected by economists after the surprise drop to 6.8 per cent in August.
Even so, unions were unimpressed by the unemployment rise, coming in the month leading into the government's cuts to JobSeeker and JobKeeper.
"Now is not the time for the government to be cutting back," ACTU president Michele O'Neil said.
"The prime minister might want to make it seem like we're through this pandemic but working people are still facing it head on."
BIS Oxford Economics chief economist Sarah Hunter expects further increases in the rate in the run-up to Christmas.
This will be the result of rolling back the JobKeeper program, continued reintroduction of mutual obligation for JobSeeker recipients and what's likely to be a very muted pick-up in hospitality employment through the rest of this year, she said.
In last week's federal budget, Treasury predicted the unemployment rate to be around eight per cent by the end of 2020 before finishing the 2020/21 financial year at 7.25 per cent.
"Against this backdrop, Governor Lowe's speech today in Sydney has signalled that the RBA will be providing more monetary support, likely in their November meeting," Dr Hunter said.
Dr Lowe said the central bank board is considering what more it can do to support jobs, incomes and businesses as Australia gets on the road to economic recovery in the wake of the coronavirus pandemic.
"When the pandemic was at its worst and there were severe restrictions on activity, we judged that there was little to be gained from further monetary easing," Dr Lowe told the annual Citi Australian and New Zealand investment conference.
"As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier."
Financial markets have been speculating the central bank could cut its key cash interest rate to 0.10 per cent, from 0.25 per cent, at its next board meeting on November 3.
Dr Lowe also said the RBA would not increase the cash rate until actual inflation was sustainably within its two to three per cent target range.
"It is not enough for inflation to be forecast to be in the target range," he said.
Australian Associated Press