The UK saw unemployment fall by 23,000 to reach 1.69 million in the three months to December 2006.
The headline jobless rate was at 5.5%
The fall put the unemployment rate at 5.5%, according to the Office for National Statistics (ONS).
The number of people claiming unemployment benefit fell by 13,500 in January to reach 925,800.
Average earnings rose by 4% in the year to December - which was less than expected - marking a 0.1% decline on November.
The pay figures should be welcome news to policymakers, who have been worried over the impact of higher wages on inflation.
Wage growth in private companies dropped 0.2% to 4.1%, while the public sector's 3.2% rate was unchanged.
The latest figures, which included a 51,000 rise in those in work for the three-month period, mean the total number of people in employment has reached a record 29.04 million - the highest since records began in 1971.
The drop in those claiming benefits was the largest since May 2004.
"The labour market is slowly tightening again, with the claimant count down for a third successive month and vacancies at their highest level since May 2005," said Geoffrey Dicks, an economist at RBS.
"Yet earnings remain remarkably well behaved."
However, he warned that this could be the "low point, since higher wage settlements will click in January".
The figures come a day after data showed that UK inflation had slowed more than expected in January to reach 2.7%.