"We would hesitate to draw such a strong conclusion from one piece of volatile monthly data. It seems more likely that methodological changes implemented in the July survey are likely to have contributed to the greater-than-normal volatility seen in the last two months," Paul Bloxham, chief economist, Australia and New Zealand at HSBC said in a note.
"Still, it's hard to not see today's data as a positive for the labor market reading, and this would be consistent with other surveys of the labor market," he said. "We remain of the view that employment growth will trend higher over the remainder of the year and into early 2015, sufficient to start gradually pushing the unemployment rate lower over 2015."
Starting in July ABS changed some of the job search steps in its labor force survey to "better reflect the nature of job search practices in Australia and to better align with international standards." The survey includes two new job search steps: 'had an interview with an employer for work'; 'taken steps to purchase or start your own business'.
The participation rate — those that have a job, are looking for work or are ready to start work - rose to 65.2 in August from 64.8 in July, above expectations of 64.8.
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The better-than-expected data could tip the debate about whether the Reserve Bank Australia (RBA) is done cutting rates. A re-balancing away from mining-led growth is largely expected to drag the economy; waning consumer confidence exacerbated these concerns following a harsh government budget earlier this year that included welfare spending cuts and tax hikes for high-income earners.
A survey by the Melbourne Institute and Westpac Bank showed an index of consumer sentiment fell a seasonally adjusted 4.6 percent in September, as households became more concerned about the outlook for the economy and employment.
However, an improving employment picture coupled with above-view second quarter gross domestic product data could allay concerns about the economy and limit expectations for further rate cuts.
"The RBA has had a relatively downbeat assessment of the labor market for some time, not expecting to see a sustained improvement in the unemployment rate until 2016. A good run of employment data could prompt them to raise their estimates of domestic demand," Bloxham said.
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"We continue to see the RBA's easing phase as done and expect the next rate hike to be in mid-2015," he said.
Last week, the RBA left rates unchanged at a record low of 2.5 percent for a 13th month.