Treasurer Josh Frydenberg says the drop in the unemployment rate is a further sign of Australia's economic recovery gaining momentum.
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.
"Today's job numbers give us another reason to look to the future with hope and with confidence," Mr Frydenberg told reporters in Canberra.
"This is another proof point of Australia's economic recovery gaining momentum."
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.
Unions see the strength of the economic recovery backing their call for a 3.5 per cent increase in the minimum wage this year.
"The key missing element of the recovery is wages growth," ACTU secretary Sally McManus said.
"It is now time for a pay rise so working people also benefit from the recovery and are able to drive spending and consumer confidence."
Across the states, Queensland and WA led the rise in jobs with both states now operating well above their pre-COVID levels, Dr Sarah Hunter of BIS Oxford Economics 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.
The ABS expects the end of JobKeeper to result in some people losing their jobs, which will be reflected in the labour force statistics in April and May.
"There is still great uncertainty about the true impact of ripping away the critical lifeline of JobKeeper at the end of last month," Labor deputy leader Richard Marles and shadow treasurer Jim Chalmers said in a statement.
"The Morrison government shouldn't be patting themselves on the back and declaring mission accomplished on the back of today's data," they said.
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.
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.
AMP Capital Chief economist Shane Oliver remains of the view that the ending of JobKeeper will not cause a major problem.
"While the end of JobKeeper may cause a slight rise in unemployment in the next few months, we now expect unemployment to have fallen to five per cent by year end," Dr Oliver said.
© AAP 2021