The ministry said 3.7 million people were registered as out of work last year, nearly 400,000 fewer than in 2015, the biggest-ever yearly reduction.
The official jobless rate – which measures the number of people out of work as a proportion of the working population – will be published later this month by Spain's statistics agency.
However, far from welcoming the news, one of Spain's most influential unions, UGT, complained that many of those moving out of the jobless queue had only been able to find employment with precarious working conditions.
“In December, just four out of every 100 contracts signed were long-term and full-time,” it said in a statement.
“Economic and social inequalities continue to increase.”
Prime Minister Mariano Rajoy's conservative government has come under fire for the unstable and temporary nature of many new contracts, even as the jobless rate has come down from the 26 percent seen during the economic crisis in 2013.
In the third quarter of 2016, it had dropped to 18.9 percent, but was still the second-highest level in the European Union after Greece.
According to the labour ministry, 18.3 million temporary contracts were signed last year, while just 1.7 million long-term contracts were handed out, up 13.5 percent year-on-year.
Rajoy, in power since 2011, has pledged to create 500,000 jobs a year, banking on continued economic growth, which is expected to come in at 3.2 percent in 2016, well above the European average.
But he also needs to bring down Spain's deficit, currently under EU scrutiny, and will have to overcome strong opposition in parliament which wants him to increase spending rather than cut it.