The Office for National Statistics said the number of people claiming jobless benefit rose by 20,300 last month, that was down from a rise of 33,700 in July and below forecasts for an increase of 35,000.
However, the number of people without a job on the wider ILO measure rose by 80,000 in the three months to July to 2.510m, the biggest quarterly rise since August 2009. The jobless rate came in as forecast at 7.9 per cent.
The number of people in employment fell by 69,000 in the three months to July, the biggest drop since March 2010.
The Office for National Statistics said the decline in employment and the rise in unemployment was driven by a sharp drop in the number of people working in the public sector.
The public sector workforce fell by 111,000 between April and June, the biggest fall since records began.
The figures reinforce recent survey which have suggested that firms are paring back their hiring plans, and suggest the labour market is coming under greater pressure from public spending cuts.
Chancellor George Osborne insists he will press on with deficit-reduction plans, putting the onus on the Bank of England to provide more stimulus to boost growth.
Average weekly earnings growth including bonuses picked up to 2.8 per cent. Analysts had forecast a rise of 2.7 per cent.