Ed Miliband claims "life's getting harder" as he clashes with David Cameron over the economy
The UK unemployment rate has dropped to 7.1%, close to the point at which the Bank of England has said it will consider raising interest rates.
The number of people out of work fell by 167,000 to 2.32 million in the three months to November, the Office for National Statistics (ONS) said.
The ONS also said the number of people claiming Jobseeker's Allowance fell by 24,000 to 1.25 million in December.
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The issue dominated Prime Minister's Questions in the House of Commons.
Labour party leader Ed Miliband said: "We welcome the fall in unemployment because whenever an individual gets back into work, it's good for them and good for their family."
But he argued that average wages were £1,600 a year lower than they were in the general election year of 2010, meaning that many families were worse off.
Thirteen million people in Britain are living in poverty, he claimed, often within working families.
Prime Minister David Cameron said the figures showed "youth unemployment coming down, long-term unemployment coming down, the claimant count coming down".
It was "the biggest ever quarterly increase in the number of people in work in our country," he said.
The chancellor, George Osborne, speaking from the World Economic Forum in Davos, said the rise in employment is evidence that his economic plan is working.
Interest rates
The fall of 167,000 was the biggest drop since the autumn of 1997. The number of 16-24 year olds out of work fell by 39,000 from the previous three-month period to 920,000.
The ONS figures also showed that the number of people in employment increased by 280,000 to reach 30.15 million.
The bigger-than-expected drop in the number of people out of work has raised the possibility that interest rates may rise sooner than previously thought.
Mr Osborne refused to be drawn on the prospect of interest rates rising, saying it was a decision for the Bank of England.
The Bank of England has said it might consider increasing interest rates from 0.5% when unemployment hits 7%.
The jobs figures pushed up the value of the pound, which hit a year-high against the euro of 1.2222 euros and climbed to a near three-week high against the dollar of $1.6553.
'Staggeringly strong'
"Especially pleasing is that the fall in unemployment is coming both from declining short and long-term unemployment, and a large decline in unemployment amongst 18-24 year olds," said David Tinsley from BNP Paribas, who described the overall figures as "staggeringly strong".
There has been a "significant" fall in unemployment, says Nick Palmer from the Office for National Statistics
Many analysts had not expected the unemployment rate to hit 7% until much later this year or next, and the significant fall in the three months to November is likely to mean many will reassess their forecasts.
A recent snapshot of views conducted by the BBC at the start of the year found that more than half the 28 economists polled thought the unemployment rate would not hit 7% until 2015.
"The rate of unemployment in the UK continues to collapse," said Chris Williamson, chief economist at Markit.
"All eyes turn to the Bank of England to see how forward guidance will be modified to account for the far-faster than anticipated improvement in the labour market."
But the latest minutes from this month's meeting of the Bank of England's Monetary Policy Committee (MPC), also published on Wednesday, indicated that the Bank is in no rush to raise rates.
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Given that inflation had returned to the 2% target rate last month, and that "cost pressures were subdued... members therefore saw no immediate need to raise the Bank rate even if the 7% unemployment threshold were to be reached in the near future", the notes said.
The MPC also said "it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet", reinforcing the fact it is in no rush to raise rates.
The ONS also said that average weekly earnings between September and November, both including and excluding bonus payments, rose by 0.9% compared with a year earlier.
For now, therefore, wage rises are not an inflationary pressure within the economy, and cannot be used as an argument for raising interest rates.
Separate figures from the ONS showed that UK government borrowing fell in December to £12.1bn, down £2.1bn from a year earlier.
- House sales show the biggest percentage increase in job vacancies, but in terms of actual jobs, it represents about 3,000 up on December 2012. House sales reached their highest level for five years in the final quarter of 2013.
- The motor trades sector has reported the biggest increase in actual job vacancies, up by 18,000 on a year ago. 2013 was the best year for new car sales since 2007.
- Overall job vacancies have increased by 75,000 since 2012.
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