The national jobless rate remains at historic low levels but easing employment growth suggests the slowing global economy and rising interest rates are starting to weigh on the labour market.
The unemployment rate held at 3.5 per cent, with 14,600 jobs lost from the economy as per Australian Bureau of Statistics data.
"With employment decreasing by around 15,000 people, and the number of unemployed increasing by 6000 people, the unemployment rate remained steady at 3.5 per cent," ABS head of labour statistics Lauren Ford said.
The unemployment rate was revised from 3.4 per cent to 3.5 per cent for November.
The participation rate fell 0.2 percentage points to 66.6 per cent for December, back to where it was in October.
"Despite this slight fall from its historic high, it finished the year 0.8 percentage points higher than its pre-pandemic level," Ms Ford said.
Treasurer Jim Chalmers was pleased there was another jobless rate in the "middle threes".
He was also not surprised about the slowdown in employment growth.
"Jobs growth has come off a bit in December in expected ways, as the combination of a slowing global economy and higher interest rates begins to take hold on our economy," he told reporters in Queensland.
But he said dampening employment growth was coming off a very high base, with 212,000 jobs created since the Albanese government came into power.
"We are in relatively good nick as we enter what might be a difficult year in the global economy in 2023," Dr Chalmers said.
While the labour market remains strong, most economists expected further employment growth in December.
The 0.1 per cent fall in employment followed a robust 58,000 lift in November and average monthly growth of about 40,000 people between August and November.
Despite the weaker-than-expected December result, ANZ economists labelled the employment dip a "one-off".
Economists Catherine Birch, Adelaide Timbrell and Madeline Dunk expect labour market tightness to endure throughout 2023.
"With 444,200 job vacancies recorded in November - around double the pre-pandemic level - and businesses still in hiring mode, it's hard to see a sharp rise in unemployment any time soon," they said.
For the Reserve Bank, the tight labour market could put upwards pressure on wages, prompting further interest rate rises to stop inflation becoming sticky.
ANZ economists expect another rate rise when the RBA holds its first meeting of the year in February, with next week's consumer price index also important for the bank's monetary policy direction.
The ABS figures released on Thursday showed the COVID wave in the final months of 2022 contributing to the uptick in people working fewer hours because of illness.
Ms Ford said the 606,000 people working less due to sickness, an extra 86,000, was more than 50 per cent higher than usual for that time of year.
The number of hours worked in the month dropped by 0.5 per cent for the second month in a row.
The underemployment rate rose to 6.1 per cent in the month, from 5.8 per cent in November.