The number of people out of work rose by 177,000 to 2.1 million between December and February, according to the Office for National Statistics.
Meanwhile, the claimant count increased by 73,300 to 1.464 million - its highest level since 1997 - and average earnings growth rose by just 0.1%, down from 1.7% in January.
The rise in people claiming unemployment benefits was smaller than expected - however, the fact that employment levels continue to fall remains a major concern. Howard Archer, economist at forecasting group Global Insight, predicts that unemployment will rise to a peak of 3.3 million in early 2011.
He adds: "The reduced rise in claimant count unemployment in March does not significantly affect our belief that the sharp contraction in economic activity since the third quarter of 2008 will continue to feed through for some time to come to batter the labour market."
The fall in earnings growth is also a concern. Charles Davis, economist at the Centre for Economic Business Research, says: “While the figures are better than expected, the deterioration in the labour market has still been severe.”
Both the claimant count and the unemployment rate are at their highest levels since 1997.
Davis adds: “The collapse in earnings growth suggests that consumers will have to continue their belt tightening over the coming months.”