"The first quarter is usually difficult for Spain," said Estefania Ponte, an economist at BNP Paribas Personal Investors in Madrid. At the same time, "job creation on a year-on-year basis has been strong. This should help consumption," she said.

Over the last 12 months, Spain has created more than half a million jobs and total employment has risen 2.97% on an annual basis, led by services, industry and a pick-up in the battered construction area, the statistics institute said.

'Most Difficult'

Reacting to the jobs data, Economy Minister Luis de Guindos said the first quarter is the "most difficult" and annual job creation shows the Spanish economy is growing above 3 percent. The government has signaled it will revise its growth projections, currently at 2.4 percent for 2015, when it approves its stability plan on April 30.

"A strong upward trajectory has now been established," said Raj Badiani, senior economist at IHS Global Insight Ltd. "But the issue remains the type of jobs that are being created, youth unemployment is still a problem."

He sees employment growth of 2.5 percent this year and 2 percent next year.

Prime Minister Mariano Rajoy, under whose tenure unemployment jumped to a record high of 6 million people out of work, has made job creation the centerpiece of his campaign for re-election campaign later this year. His People's Party faces competition from its traditional rival, the Socialists, as well as alternative parties, Ciudadanos and Podemos.

"While today's data shouldn't be over-interpreted due to the intrinsic seasonal factor, a strong decrease of unemployment is key for Rajoy's strategy," said Antonio Barroso, a London- based analyst at Teneo Intelligence, which advises investors on political risk."Without significant improvement in the labor market, his re-election bid looks weaker."

Stronger Growth

Campaigning on a platform of stronger growth and more work, the People's Party has pledged to create 500,000 new jobs and have 20 million at work if Rajoy is re-elected.

Despite the jump in unemployment, the Bank of Spain recently upgraded its economic forecast for the kingdom to 2.8 percent this year and 2.7 percent in 2016 citing a weaker euro, stronger internal demand and the impact of fiscal reform.

However, unemployment will only fall to a pre-crisis level by the end of 2016, according to the Madrid-based central bank, when it is expected to drop to approximately 20 percent from a record high of 27 percent. That compares with Spain's all-time low unemployment rate of 7.9 percent in 2007.

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