While the seasonally adjusted unemployment rate was steady at 4.1%, there were fewer people in jobs and also fewer people out of work.
The unemployment rate had been widely anticipated by markets although the job losses have taken analysts by surprise.
Overall, employment fell by 53,000 people while the unemployed fell by 11,000 people.
Australian Bureau of Statistics head of labour statistics Bjorn Jarvis attributed the employment fall to fewer older workers returning to the workforce in February, along with lower levels of employment in older age groups compared to 2024.
"This follows higher levels of employment in these age groups in recent years, particularly in 2024, alongside growth in the employment-to-population ratio over the last few years," he said.
The employment-to-population ratio hit an all-time high in December.
The data shows the share of adults who either have a job or are looking for one dropped to 66.8% from a record 67.2% in January.
But despite the fall in employment, in seasonally adjusted terms, the number was still around 266,000 people - or 1.9% - higher than in February last year.
The annual growth rate remains around the 20-year pre-pandemic average of 2%.
What does the figure mean
The unemployment data will be a small piece of the puzzle the Reserve Bank of Australia (RBA) will consider at its next meeting on the cash rate on 31 March-1 April.
February's data suggests a loosening in the jobs market and that may ease RBA concerns of inflationary pressures re-emerging.
The RBA made its first cut to the cash rate in four years at its last meeting in February.
Markets are pricing in only an 8% chance there will be a follow up cut on 1 April.
Economists wary of "uncertainty"
Earlier this week, RBA chief economist Sarah Hunter acknowledged US President Donald Trump's trade tariffs were causing "uncertainty" which will affect future rate decisions.
Ms Hunter told the Australian Financial Review's Banking Summit the board will base its decisions on forecasts and new data sets as they unfold.
Many analysts are predicting the next cut to the cash rate will most likely come at the board's May meeting.
However, Ms Hunter said the future pathway for the cash rate was not predefined.
"Under uncertainty, policy depends on more than just the central forecast - judgements about the risks and uncertainties matter too," she said.
Budget will also figure
The sentiment is shared by Federal Treasurer Jim Chalmers who will hand down the 2025-26 federal Budget on Tuesday 25 March.
In a pre-Budget speech this week, he warned of the impact of a possible global trade war.
"Even in the most benign scenario, global growth over the next three years is expected to be its weakest since the 1990s," he warned.
The RBA will be closely considering the Federal Budget measures in its modelling and deliberations at its next meeting.
US holds benchmark rate
The unemployment data comes on the same day the US Federal Reserve held its benchmark interest rate for the second straight meeting.
The US economy is showing signs of slowing and analysts fear US inflation could remain high.
Fed chairman Jerome Powell acknowledged the uncertainty surrounding President Trump's major policy changes but said officials would wait for greater clarity on the impact of before acting on rates.
Like it or not, Australia's - and much of the world's economic fortunes - is linked to the health of the US economy.
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