Employment decreased by 227,700 people between April and May, new data from the Australian Bureau of Statistics (ABS) shows.
ABS head of labour statistics Bjorn Jarvis said that the number of people who have experienced job loss since March is more than 800,000.
"The drop in employment, of close to a quarter of a million people, added to the 600,000 in April, brings the total fall to 835,000 people since March.
"In two months, the percentage of people aged 15 and over employed in Australia decreased from around 62.5% to around 58.7%" he said.
According to the data, unemployment increased by 85,700 people to 927,600, and the unemployment rate increased by 0.7 percentage points to 7.1% (from a revised 6.4% in April and 5.2% in March).
As in April, the size of the increase in the unemployment rate in May was reduced by larger than usual numbers of employed and unemployed people leaving the labour force.
This was reflected in a further fall in the participation rate, down 0.7 percentage points to 62.9%.
The ABS reports that the last time the participation rate was below 63% was in January 2001.
In May, monthly hours worked fell by 0.7% to be down 10.2% since March (with the April fall revised up to 9.5%).
The underemployment rate also declined in the month, slipping 0.7 percentage points to 13.1%, but remained 4.3 points above March.
The underutilisation rate, which combines the unemployment and underemployment rates, rose to a new record high of 20.2%.
Jarvis added that Australians are experiencing the downturn in different ways.
"The ABS estimates that a combined group of around 2.3 million people - around 1 in 5 employed people - were affected by either job loss between April and May or had less hours than usual for economic reasons in May.
"Women continued to be more adversely affected by the labour market deterioration than men.
"Younger workers have also been particularly impacted," he said.