MILAN - Italy's unemployment rate hit a record of 9.8 per cent in March from 9.6 per cent in February, official data showed on Wednesday, as a recession in the eurozone's third-biggest economy deepens.

The level, which has been rising from the start of recession last summer, was the highest since Italy began recording monthly figures in January 2004.

The rate of unemployment among young people aged between 15 and 24 also rose to 35.9 per cent from 33.9 per cent in February, the data agency Istat said.

Seasonally adjusted data showed that the number of people looking for work went up to 2.506 million in March - a 2.7 percentage point rise over a month and a 23.4 percentage point increase from March 2011.

The Italian economy shrank by 0.2 per cent in the third quarter of last year and by 0.7 per cent in the fourth quarter.

The government is forecasting a contraction of 1.2 per cent this year and growth of 0.5 per cent in 2013.

Prime Minister Mario Monti's government has proposed an overhaul of the labour market saying it will help young people find jobs but the plan has been criticised by trade unions which warn it will increase unemployment.