Unemployment has surged past two million for the first time in 12 years, while the number of people signing on for benefit soared by a record 138,000 last month.
Grim new figures showed redundancies reaching a record high, jobs and vacancies falling and more people claiming jobseeker's allowance.
The total number of people out of work, including those not eligible for benefit, jumped by 165,000 in the quarter to January to 2.03 million, the worst figure since Labour came to power in the summer of 1997.
The quarterly rise was the highest since 1991, and the total has now increased by 421,000 over the past year, said the Office for National Statistics.
Jobseeker's allowance claimants increased by 138,400 in February, the 13th consecutive monthly rise and the largest monthly increase since records began in 1971.
The new total of 1.39 million is almost 600,000 higher than a year ago and is the highest figure since 1998.
A total of 266,000 people became redundant in the three months to January, the worst figure since records began in 1995 and up by 86,000 on the previous quarter.
The number of jobs fell by 203,000 to 31.3 million in the quarter to December, the largest slump since 1992.
Vacancies fell by 74,000 to 482,000 in the three months to February, the lowest total since comparable records began in 2001.
Other figures showed that average earnings increased by 1.8% in the year to January, the lowest since records began in 1991, while for the month of January alone wages fell by 0.2% - the first time this has ever happened.
The unemployment rate is now 6.5%, an increase of 1.3% over the year, the highest figure since the end of 1997.
The number of people employed in the public sector was 5.78 million in December, up by 15,000 over the quarter and by 30,000 over the year, while employment in private firms fell by 13,000 to 23.6 million over the quarter and by 105,000 over the year.
The only piece of good news for ministers in the figures was a 102,000 fall in the number of people classed as economically inactive, to 7.8 million, the lowest for almost three years.
The figure includes people looking after a relative, those on long-term sick leave, students and people who have given up looking for work.
Manufacturing productivity fell by 5.6% in the quarter to January, the biggest cut since 1985.
TUC general secretary Brendan Barber said: "This is another milestone in the return of mass unemployment to the UK, and it will get worse before it gets better as unemployment always persists even after a recovery starts.
"But this unemployment has not just been made in Britain, and requires an international response. It is beginning to look like the G20 summit may not agree the co-ordinated boost to the world economy called for by Barack Obama and Gordon Brown.
"International summits may seem a long way from the dole queues, but without such a stimulus unemployment will go higher and last longer.
"We need to put every pressure on world leaders to work together to fight the recession."
Paul Kenny, general secretary of the GMB, said: "As well as the misery for the two million on the dole, add the fear of millions of others who know that they too are at risk of redundancy. We do not know who the next million to lose their job will be.
"The harsh reality is that capitalism is revealed as anarchy writ large. Voters are not known to vote for anarchy. This could impact on voters at the next election."
Peter Mooney, of Employment Law Advisory Services, said he believed the figures may be an under-estimate of the true level of unemployment.
"This is a huge psychological blow to British business. While the figures seem shocking, we are not in the least surprised. The number of firms seeking help in making redundancies has sky-rocketed, and that is continuing, shooting up week on week.
"These figures are at best a fuzzy picture of what was true up to January - but things have worsened considerably since then.
"We are seeing jobs slashed drastically - especially in the North East, West Midlands, North West and parts of London."
Alan Tomlinson, partner at licensed insolvency practitioner Tomlinsons, said he had never been so busy, adding: "Companies of all sizes, and in all sectors, are folding by the day, putting more and more people out of a job.
"The CBI's prediction, last month, that unemployment will peak at just over three million in the second quarter of 2010 could prove to be wildly optimistic."
David Kern, chief economist at the British Chambers of Commerce, said: "The outlook for unemployment is worsening and there is an urgent need for action. At this rate, unemployment looks set to reach 3.2 million in 2010.
"Even with some staff accepting pay freezes and working fewer hours, it is clear that employers are facing significant financial pressures.
"There is a vital need for steps specifically aimed at preventing a damaging loss in our industrial skills base. Temporary measures such as wage subsidies need to be seriously considered."
Baroness Valentine, chief executive of business group London First, said: "We need swift action to support investment and employment - it costs much less to keep people in work than to create new jobs.
"Government must lead from the front in setting up apprenticeship schemes in Whitehall.
"We need new investment in productive infrastructure - such as electrification of the outer London rail line - and get moving on existing programmes, such as improvements to further education colleges."
Unemployment among 16 to 24-year-olds increased by 23,000 to 621,000 in the quarter to January, while the number of people out of work for at least a year was 460,000, up by 23,000 from the three months to October.
The new data also showed a 48,000 fall in the number of people in full-time employment in the latest quarter, to 21.8 million, and a 50,000 increase in part-time workers, to 7.55 million.
Shadow work and pensions secretary Theresa May accused the Government of "sleepwalking" through what she called the "unemployment crisis".
"This is a grim milestone that no-one wanted to reach," she said.
"Gordon Brown's negligent and complacent attitude over the past decade means we have a huge skills gap in the economy. It is extremely worrying that people don't have the necessary skills to fill the current vacancies in the economy.
"Labour needs to wake up and allow people claiming Jobseeker's Allowance to retrain immediately, instead of having to wait 18 months."
Liberal Democrat work and pensions spokesman Steve Webb said: "These figures are proof that Government forecasts for unemployment are pure fantasy.
"If unemployment keeps rising at the current rate, we'll hit the level the Government is predicting for 2012 by April this year.
"Ministers cannot tackle this crisis if they keep hiding the scale of the problem.
"It is time for Alistair Darling to admit that he has massively under-estimated the rise in unemployment. Unless he does this, his Budget projections will not be worth the paper they are written on."
TUC general secretary Brendan Barber said: "Today's record low earnings figures are not what they seem. The big fall is almost entirely explained by the collapse in City bonuses since last year.
"In the real economy, earnings are still on average increasing by 3.5%. This distortion shows just how ridiculous bonuses were last year, even when we were on the road to recession.
"It is entirely understandable that workers in companies under threat in the recession are settling for modest pay increases or even freezes. But it would be extremely bad news for the rest of the economy if wages didn't continue to rise.
"A general wage freeze would simply encourage consumers to spend less, and many companies can well afford to pay a reasonable increase."
Dave Prentis, general secretary of Unison, said: "A huge number of people have to swallow the bitter pill of unemployment while Fred Godwin and his cronies, who are directly responsible for this rise in the jobless figures, are still living the good life.
"These are individual tragedies but they need an international solution. World leaders gathering for the G20 summit must take action to protect and create jobs and end this misery."
Liberal Democrat work and pensions spokesman Steve Webb said: "These figures are proof that Government forecasts for unemployment are pure fantasy.
"If unemployment keeps rising at the current rate, we'll hit the level the Government is predicting for 2012 by April this year. Ministers cannot tackle this crisis if they keep hiding the scale of the problem.
"It is time for Alistair Darling to admit that he has massively underestimated the rise in unemployment. Unless he does this, his Budget projections will not be worth the paper they are written on."
Lee Hopley, of the Engineering Employers Federation, said: "The acceleration in job cuts in manufacturing marks the continuation of a worrying trend. Companies are doing their utmost to hold on to skills in the face of significant production cuts and few signs that demand will pick up in the short term.
"Without targeted intervention from government, the spate of recent announcements on job cuts is unlikely to end soon."
John Philpott, chief economist at the Chartered Institute of Personnel and Development, described the data as the "most doleful set of jobs figures since the start of the recession".
He said: "Not only is unemployment back to where it was in 1997, but it now looks as though we are heading towards the worst outlook for jobs in the UK's post-war history. Full employment is not just slipping away, it is sinking without trace.
"The rise in the headline level of unemployment above two million is only part of the sorry story. Much more alarming is a surge in claimant unemployment in February - the monthly increase of 138,000 in the number of people claiming jobseeker's allowance surpasses even the darkest days of rising unemployment in previous recessions."
Nigel Meager, director of the Institute for Employment Studies, said: "The monthly benefit claimant count has only ever increased by more than 100K in a single month twice before, in March 1991 and November 1980.
"Last month, the increase was over 138,000, making the rate of increase almost four times what it was in the year to January. We are now in uncharted territory."
Graeme Leach, chief economist at the Institute of Directors, said: "If the increases stay at this rate over the next six months, we face a brutal recession. However, the economic pain is not equally divided.
"Today's figures also show that average earnings growth in the public sector remains steady around 4% compared with just 1.4% in the private sector.
"In January alone, private sector earnings growth actually declined 1.1% year-on-year, including bonuses."
Gordon Lishman, director general of Age Concern, said: "Today's figures will send fear into the hearts of millions of older workers who are holding on to their jobs for dear life and bring further gloom for those who are desperately searching for new employment.
"Older employees are often first in line for redundancy or are forced to 'retire' before they are ready. Yet with mortgages to pay, relatives to support and devalued pensions, for this group, losing their job will often mean losing a lot more."
More than a fifth of people who became unemployed in the past three months were under 25, warned the Prince's Trust.
Chief executive Martina Milburn said: "Letting our young people fall into this unemployment trap will cost our economy nearly £10 million a day in lost productivity.
"Helping young people into work is more important than ever, saving the economy billions each year and tapping into this lost potential."
Labour MP John McDonnell (Hayes and Harlington) said: "Behind every one of these devastating figures is a story of mounting human suffering across the country. It is clear now that the Government's package of bailing out the banks is not working."
Housing Minister Margaret Beckett said: "One of the things that we have done is to substantially increase the help people can get if they do lose their job so that hopefully they don't lose their home as well.
"After people have been unemployed for some months there is an increased programme of help with job searching, training, a whole package of things that people can have.
"We can't necessarily stop people from losing their jobs; what we hope to be able to do is help people find the next one, and what we are very anxious to avoid is what happened in previous recessions where we have got a big pool of people who are unemployed for a very long time.
"I am not playing down the terrible consequences for people who lose their jobs but of course a lot of people do get another one quite quickly.
"About 70% of people or more get a job within six months, in many cases in less than that.
"So the labour market is still moving but obviously what we want to try to do is help people find that next job."
Employment minister Tony McNulty said: "These latest figures show the human impact of the global recession. No matter how hard times get, we will not give up on anyone who loses their job and will continue to provide real help to everyone who needs it.
"Even with the fall in labour demand that we are currently experiencing, we need to remember that three quarters of people claiming Jobseeker's Allowance leave it within six months, and 250,000 people left the claimant count in February.
"We are investing £2 billion to ensure Jobcentre Plus can continue to offer all its customers a first class service and next month people who have been claiming for six months will be able to access the enhanced package of support which we announced in January."
Work and Pensions Secretary James Purnell told BBC Radio 4's The World at One: "These are bad figures. There is no gloss that anybody is going to try to put on them. We are dreadfully worried for the people who are behind these numbers."
© 2012 The Press Association Limited
