German seasonally adjusted unemployment fell in March for the first time since December 2000.
The results give a boost to Chancellor Mr Gerhard Schroeder's government ahead of the September election.
Despite recent high-profile corporate failures, seasonally adjusted unemployment fell 8,000 to 3.968 million, and the unadjusted total also fell 140,000 to 4.156 million, according to official data.
The German labour office's new head, Mr Florian Gerster, a member of Mr Schroeder's party, claimed the drop appeared to be due mainly to the success of new government employment policies.
He said some 180,000 people had so far been helped under legislation designed to better integrate the unemployed back into the labour market that came into force in January.
He also said between 10,000 and 20,000 people had taken up vouchers available since March 27th to seek new jobs via private employment agencies.
Mr Gerster predicted a significant drop in unemployment by July but warned Germany's fledgling economic recovery would not affect the labour market until the second half.
Analysts noted Mr Schroeder's ability to make political capital from the drop was limited by the fact the weak economy last year forced him to abandon a pledge to get unemployment down to 3.5 million during his four-year term.