Official data shows the jobless rate in the June quarter fell to 4 percent, from 4.7 percent in the previous quarter.
The rate was better than the 4.5 percent forecast by analysts, and is below the level before the pandemic.
The number of unemployed people fell by 12.4 percent - the largest quarterly percentage fall in unemployment since Stats NZ's Household Labour Force Survey began in 1986.
The economy gained 28,000 jobs during the quarter.
"The fall in unemployment is largely in line with other labour market indicators, including declining numbers of benefit recipients and increased job vacancies, and recent media reports of labour shortages and skills mismatches," said Stats NZ work, wealth, and wellbeing statistics senior manager Sean Broughton.
Frog Recruitment managing director Shannon Barlow said the labour market was now tipped in favour of job-seekers and employers were competing with each other to fill roles.
That was good news for job seekers who can choose between jobs, she said.
"It's a job-seekers market and we're starting to see the norm is to have two or three different opportunities on the table."
But employers were finding it challenging to fill vacancies.
"Sometimes interviews will be cancelled last minute, most of the time it's because they've decided on one of the offers that's already come through and secured something."
"Employers who are able to move quickly are the ones who are winning out and it really is a race."
The underutilisation rate, which is a measure of the slack in the labour market, was 10.5 percent, down 1.6 percent.
Unemployment is defined as those actively seeking work, while underutilisation includes those wanting to work more hours or who could work but are not actively seeking a job.
The strength of the economic rebound also showed through in the number of hours worked, and average earnings, with annual wage growth at 2.2 percent.
The strength of the numbers had economists calling an interest rate rise from the Reserve Bank in two weeks a near certainty.
BNZ head of research Stephen Toplis called the jobs numbers "a stonker".
He said everything about the numbers was strong: a much lower unemployment rate, which was set to go lower; clear and strong evidence of wage inflation; stronger economic activity; and a sharp fall in underutilisation.
"All this strongly confirms our view of RBNZ tightening in August and relatively aggressive interest rate track from there on in."
Toplis said he now expected the central bank to raise the OCR by 25 basis points (a quarter of a percentage point) at each of the three remaining rate reviews this year.
That would take the OCR to 1 percent by year end.
Other economists were also quick to change their forecasts with ANZ and ASB agreeing on three rises this year, and picking another two rises next year to take the OCR to 1.5 percent and above pre-pandemic levels.
However, the Council of Trade Unions cautioned about getting too carried away by the numbers.
"We now need to see pay for working people match the good news on employment," CTU economist and director of policy Craig Renney said.
"Seventy three percent of Kiwis received a pay increase of less than inflation last year ... (and) annual hourly earnings growth is the same as it was in 2019 pre-Covid ... increases in wages seems to be coming from New Zealanders working longer hours."
He said more needed to be done to improve employment prospects for women, Māori and Pacific, who all had high jobless or underemployment rates.