An extra 39,500 people were in a job in August while 28,200 more were unemployed, the Australian Bureau of Statistics reported on Thursday.
As a result, the participation rate climbed 0.2 percentage points to a near-record high 67.1 per cent.
The participation jump clouded the signal from the release, with the jobless rate and the employment gain both exceeding expectations.
The forecasting consensus had been for the unemployment rate to hold steady at 4.5 per cent and an increase in employment of 20,000 jobs.
"This August we recorded a higher proportion of people who were previously not in the labour force moving to being unemployed, compared to recent years," said Sean Crick, ABS head of labour statistics.
"The growth in the size of the labour force resulted in the participation rate increasing by 0.2 percentage points to 67.1 per cent."
The last time the unemployment rate was above 4.5 per cent was in November 2021.
Speaking at a Committee for Economic Development of Australia event on Tuesday, RBA governor Michele Bullock said the labour market was still "a bit tight" and an unemployment rate between 4.5 per cent and 5 per cent would be needed to ease pressure on inflation.
Her comments further cemented market expectations that the RBA board would hike interest rates next week.
Money markets were pricing the chance of a September 29 rate hike at greater than 85 per cent ahead of the labour force release.
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