Scott Morrison says the latest decline in the unemployment shows his government's economic plan is working.
The jobless rate dropped to 6.4 per cent in January, when economists had expected a more modest fall to 6.5 per cent from 6.6 per cent.
The Australian Bureau of Statistics said this was the result of a 29,100 rise in the number of people employed in the month, with a 59,000 jump in full-time positions offset by a decline in part-time workers.
The prime minister said 93 per cent of the people who lost their job when the COVID-19 recession first hit were now back in work.
"Our economic recovery plan is working," Mr Morrison told parliament on Thursday.
But federal Labor, while welcoming the fall in the unemployment rate, does not believe the government has a plan after support measures end in March.
"Hoping for the best is no substitute for a plan," deputy opposition leader Richard Marles told reporters.
But Treasurer Josh Frydenberg is confident the labour market can absorb the withdrawal of the JobKeeper wage subsidy next month.
"Yes, JobKeeper is coming to an end in March, but the Australian labour market will continue to be resilient as we taper off those payments and move to other support across the rest of the economy."
Shadow treasurer Jim Chalmers said there were still millions of Australians doing it tough.
"It's time for the government to acknowledge that the economic picture is not as rosy as they suggest," Dr Chalmers told reporters.
"A lot of what we are seeing in the labour market is the inevitable recovery from the deepest and most damaging recession in almost a century."
ABS head of labour statistics Bjorn Jarvis said the January result was the fourth consecutive monthly rise in employment, as jobs in Victoria continued to recover.
Nationally, employment was only 59,000 people lower than March 2020 when coronavirus first hit Australia, having fallen by 872,000 people early in the pandemic.
The participation rate - people in work or seeking employment - eased from a record high of 66.2 per cent in December to 66.1 per cent.
While still well above the 5.1 per cent rate seen before the virus hit Australia's shores, unemployment is comfortably below the 7.5 per cent level seen in July last year.
KPMG chief economist Brendan Rynne expects the unemployment rate to fluctuate over the remainder of this year once government support programs are stopped and businesses re-assess their viability.
"However, we still anticipate the unemployment rate to hover around mid-sixes for the next couple of quarters before falling relatively rapidly to mid-fives in the early to mid part of 2022," Dr Rynne told AAP.
HSBC chief economist Paul Bloxham also expects the jobs market will lose momentum when JobKeeper ends, particularly as international borders are likely to remain closed for the rest of the year at least, impacting businesses tied to tourism.
"We expect the likely outcome is more fiscal support," he said.