One in four Spanish workers are now without a job.
The latest unemployment data reflects the impact of the region's recession, and Spain's government cuts aimed at restoring stability to the country's finances.
The national statistics office said unemployment in the July to September period rose 0.4%, compared to the previous quarter; and 3.5% compared to the year prior, as another 85,000 people were left without work.
A sharp fall in the number of public sector workers accounted for a large portion of the unemployment rate increase. Almost 50,000 fewer workers were employed in the public sector in the third quarter, representing a fall of 7% year-over-year.
Some 1.7 million Spanish households have no adult of working age in employment, a rise of more than 300,000 over the past year. That means around 10% of all Spanish homes are now without a breadwinner.
The unemployment figures underscore the impact of Spain's second recession in the last three years. The eurozone's fourth biggest economy had fewer than 2 million people out of work at the end of 2007, when it was riding a boom before the financial crisis hit.
Analysts believe Spain's unemployment rate could deteriorate further next year as the economy continues to contract, and more austerity measures begin to bite as Madrid struggles to contain its budget deficit.
Prime Minister Mariano Rajoy's government and the International Monetary Fund predict that Spain will remain stuck in recession next year.
Data published by the Spanish central bank earlier this week showed the country's economy shrank by 1.7% in the third quarter, compared to a year earlier.
Spain's economic decline has been driven by a real estate bubble burst that destroyed the capital base of its banks. A recent audit showed Spanish banks need 60 billion euros to plug holes in their balance sheets, and Madrid's European partners have agreed to provide up to 100 billion euros in bailout loans.
Recent surveys of business activity for the eurozone point to a darkening outlook for the region as a whole.
After soaring to unsustainable levels earlier this year, Spain's borrowing costs have fallen sharply after a European Central Bank pledge to buy eurozone sovereign bonds.
But for that to be triggered, Spain would need to request assistance from the European Stability Mechanism, the eurozone's rescue fund for debt-stricken members. Some economists expect that to happen soon.
Earlier this month Standard & Poor's cut Spain's rating credit rating by two notches to BBB-, citing rising social discontent as one of the country's risks.
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