While the drop was still sharp, it was less intense than analysts had expected and represented a considerable improvement from the stunning 6.1 percent decline last month.
Economists had forecast a 3.4 percent drop in February and some analysts took the latest data as a sign that the worst could be over for Germany's embattled industrial sector.
Martin Lueck from Swiss banking giant UBS said that it was "another very poor number, but less ugly" than the figures reported the previous month, which were the worst output data since German reunification in 1990.
"This data, albeit still incredibly poor, raises further hope that we may indeed be close to the bottom," he said.
For its part, the ministry said the outlook for German industry was not bright.
"Given the still falling industrial orders, output will remain weak in the coming months," the ministry said in a statement.
Data released Wednesday showed that industrial orders in Germany fell 3.5 percent in February from the January level.
Jennifer MacKeown from Capital Economics was less upbeat.
The figures "confirm that the sector is still in dire straits," she said.
"The latest data clearly suggest that the recession is still in full swing," she added, saying her forecast of a four percent fall in German gross domestic product (GDP) in 2009 looked increasingly over-optimistic.
Germany is facing its worst recession in over six decades, with the Organisation for Economic Cooperation and Development (OECD) predicting GDP in the world's largest exporter will slump by more than five percent this year.