On the back of a string of good news for the economy, the unadjusted rate of unemployment dropped to 7.2 percent of the workforce, the federal labour office said.
"This is the lowest level since November 2008," ING senior economist Carsten Brzeski noted. "On time for the 20th anniversary of German reunification, the German labour market has become a real success story."
The number of people seeking work fell by a seasonally-adjusted 40,000 to 3.031 million people. Economists polled by Dow Jones Newswires had forecast a more modest decline of 20,000.
German unemployment stood at an unadjusted 7.6 percent in August and the level in September marked the 15th consecutive monthly decline.
The fall pushed the adjusted jobless rate down to 7.5 percent from 7.6 percent in August.
On Tuesday, Chancellor Angela Merkel forecast the number of unemployed might fall below the politically significant level of 3 million by the end of the year.
"We may get to 3 million or perhaps slightly below," Merkel said after the economic research group GfK reported that German consumer sentiment was at a three-year high, largely as a result of improvements in the labour market.
The labour office said the strong decline in September was a result of "the economic recovery and a typical surge in the autumn" when young graduates often begin working.
"There is strong corporate demand for workers," added Frank-Jürgen Weise, who heads the office.
Earlier on Thursday, the IG Metall trade union said it had accepted a 3.6 percent wage increase for about 100,000 workers in the steel sector after initially calling for a 6.0 percent pay hike.
Brzeski noted that "looking ahead, today's labour market report bodes well for private consumption.
"Dropping unemployment numbers should bring psychological support for consumers, increasing the feel-good-factor."
The export-oriented German economy could also get more support from business investment, the Ifo economic research institute said.
"Another acceleration of the pace of expansion is expected toward the end of the year, as many firms will want to take advantage of the favourable depreciation terms that expire at the end of 2010," Ifo said.
AFP
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