The jobless rate fell to 18.6 percent in the final quarter of 2016, its lowest level since the last three months of 2009, according to figures released by national statistics institute INE.
While Spain's jobless rate remains the second highest in the eurozone after Greece's, the figures are further evidence that the Spanish economy is enjoying a steady recovery.
Tourism has played a big part in the improving unemployment figures. Spain hosted a record 75.3 million foreign visitors last year with the rise attributed to holidaymakers shying away from resorts in north Africa and Turkey over terrorism fears.
Spain emerged from five years of on-and-off recession at the end of 2013, which was caused by the burst of a property bubble in 2008.
During those years, millions of Spaniards lost their jobs, with unemployment reaching close to 27 percent in 2013.
"There is still much to do," Prime Minister Mariano Rajoy said during an interview with radio Onda Cero.
"But I insist we had five years of negative economic growth, which destroyed 10 percent of Spain's gross domestic product. You can't fix that in 15 minutes," he added.
Rajoy's conservative government credits a labour law reform that reduced severance pay and introduced a new permanent contract with a one-year trial period for the drop in joblessness.
The total number of Spaniards out of work stood at 4.24 million people for the final quarter of last year compared with a record high of six million at the height of the economic crisis in 2013.