Labour force figures for September showed the unemployment rate rising from 4.2 per cent to 4.5 per cent for the month, according to the Australian Bureau of Statistics.
Economists had widely tipped the jobless rate to remain steady for the month.
It's the highest unemployment rate since November 2021.
Unemployment rose by 34,000 people during the month, with the number of employed people rising by 15,000.
"As a result of these increases, the participation rate rose by 0.1 percentage points to 67 per cent, although this is below the record high of 67.2 per cent we saw at the beginning of the year," head of labour statistics Sean Crick said.
Full-time employment has risen by 9000 people for the month, which came from a rise of 23,000 men in full-time roles.
The number of women in full-time roles dropped by 15,000, while hours worked rose by 0.5 per cent in September.
The unemployment figures will be a crucial indicator for the Reserve Bank when it decides whether to lower interest rates further when it meets in early November.
When asked about the state of the jobs market, RBA governor Michele Bullock said employment was a little bit "tight", which generally means there are more jobs than available workers.
However, it's also close to in balance, she told the Nomura Research Forum in Washington DC on Thursday (AEDT), while pointing to an ongoing moderation in inflationary pressures in the local economy.
"At the moment we are probably close to balance in terms of the output gap (in the economy) ... and ultimately what inflation tells you is whether or not you've got an output gap," she said.
"Employment, we think, is marginally a little bit tight.
"But we look at a lot of different indicators of the labour market, so those two things (inflation and employment) suggest to us that maybe it's a little tight but it's close to balance," she said.
The central bank's assistant governor Christopher Kent said the fact that fewer people are opting to make extra payments on their mortgages isa sign that financial conditions are easing in the economy.
"In response to high mortgage rates, extra payments rose above the pre-pandemic average by the end of 2024," he said in a speech in Sydney on Thursday.
"But extra mortgage payments have now declined, which is possibly an early response to the easing in interest rates."
Mr Kent said growth in household credit and a strengthening of the housing market was also an indication that conditions had eased, while also warning it would not be all smooth sailing ahead.
"Our forecasts imply that the tightness in financial conditions has eased, which will help to keep the economy in balance in the period ahead," he said.
"This outlook is subject to considerable uncertainty, and we will continue to reassess it in light of what the incoming data mean for the economic outlook and evolving risks."
Ms Bullock also said the bank's interest rate cuts, which only started in February, were still working their way through the economy with a 12-month lag.
"We don't think policy is really restrictive at the moment and likewise we don't think it is accommodative; I would say it is marginally tight," she told the forum.
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