The number of people claiming Jobseeker's Allowance fell in March
UK unemployment rose by 70,000 to 2.56 million between December and February, the Office for National Statistics (ONS) has said.
It pushed the unemployment rate to 7.9%, raising further questions about the UK's economic strength.
The number of people in employment also fell, while earnings growth slowed considerably, according to ONS data.
But there was positive news on the number claiming Jobseeker's Allowance last month, down 7,000 to 1.53 million.
'Challenges ahead'The number of people in work fell by 2,000 in the latest quarter to February, to just under 30 million, the first time the figure has dipped since autumn 2011.
And the ONS said that average regular pay, excluding bonuses, rose by 1%, the lowest since records began more than a decade ago.
The news hit sterling, with the pound falling more than a cent against the dollar on concerns that a weaker labour market pointed to worsening economic prospects.
It was up against the euro as the equity markets in London closed, having reversed earlier losses.
Continue reading the main storyEmployment Minister Mark Hoban acknowledged that there were "still tough challenges ahead", but highlighted the importance of the fall in the number of people claiming Jobseeker's Allowance (JA), and especially the drop among young people.
Analysis
So is the labour market moving into a weaker phase?
It's understandable that the question is being asked after the second successive monthly report of higher unemployment and a significant 70,000 increase.
The Office for Budget Responsibility has already forecast a slight rise in the jobless rate by next year. The employment figures suggest a levelling off in job creation after a strong run of expansion last year.
But there were more people looking for work following a fall in the number of economically inactive (those who have left the workforce) and this can be seen as a positive sign.
Those in work are still taking their share of the pain - the 1% increase in average regular pay (excluding bonuses) was the lowest since records began more than a decade ago. So with inflation unchanged at 2.8%, the squeeze on households continues.
"We will continue to give jobseekers all the help and support they need to realise their aspirations," he said.
Ministers said the number of JA claimants fell in every region of England, Wales and Scotland, while the number of new claims was at its lowest level for more than four years.
The number of young people claiming JA is down by 2,800 on the month, and is 65,400 lower than last year.
However, the ONS data also revealed that 900,000 people have been out of work for more than a year, an 8,000 increase on the three months to November, while the number of unemployed 16 to 24-year-olds rose by 20,000 to 979,000.
Despite the increase in unemployment, the total is 71,000 lower than a year ago. There has been a 62,000 fall in the number of people in part-time jobs, to just over eight million, with a 60,000 increase in full-time employment, to 21.6 million.
Labour called on Chancellor George Osborne to heed Tuesday's suggestion from the International Monetary Fund that the UK ease its austerity plans.
Liam Byrne MP, Labour's shadow work and pensions secretary, said: "Three years on it's now as clear the government's plan is failing, and failing badly. Not only are more people unemployed than at the election, it's soaring up.
"With the IMF warning George Osborne to change course and unemployment getting worse, it's clear the time has come for a fresh approach."
'Needless waste'Alan Clarke, economist at Scotiabank, said: "It's not a disaster, but a lot of the froth and really good news we had over the last year on jobs is becoming exhausted, which shouldn't be a surprise when there is not much growth around."
George Buckley, at Deutsche Bank, said the data told two stories about the jobs market.
"On the claims numbers they were obviously quite positive in the sense that the last month's number got revised to an even bigger fall and we saw another fall this month.
"But on the negative side, first of all employment, which is down, the expectation was that it would rise slightly, we saw the unemployment rate go up and we've also seen very weak average earnings growth, much weaker than expected," he said.
GMB union general secretary Paul Kenny said: "The chancellor should heed IMF advice to change course to grow the economy to end this needless waste of human talent."
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The Prince's Trust highlighted the particular impact of youth unemployment, which chief executive Martina Milburn said "is still dangerously close to a million".
She said: "Thousands of these young people are long-term unemployed, often facing further challenges such as poverty and homelessness. We must act now to support these young people into work and give them the chance of a better future."
Also on Wednesday, the Bank of England released minutes of its last interest rate meeting, which showed that policymakers remain divided over whether the UK economy needs more stimulus via its quantitative easing asset purchase programme.
Economists believe it is a close call whether first quarter growth data, due to be published next week, will show the economy sliding back into recession.
They said the fragile labour market underlined the continuing weakness of economy, and there was particular concern about the ONS' pay data.
That pushed the euro to 86.37 pence against the pound, its highest since 15 March. Sterling also fell 0.6% against the dollar.
"It's the earnings data that has done the damage. Combined with CPI (inflation) data yesterday it shows the brutal squeeze on real incomes is ongoing," said Adam Cole, global head of FX strategy at RBC Capital Markets.
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