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Australian unemployment fell to a fresh three-decade low in May of 4.2 per cent, increasing the possibility of higher interest rates later this year.

The Australian Bureau of Statistics (ABS) says employment rose by a seasonally adjusted 39,400 in May, with full-time employment surging by 66,800.

Economists had expected a 10,000 increase.

The seasonally adjusted unemployment rate of 4.2 per cent compared with 4.4 per cent in April.

Economists say new methodology used by the ABS in compiling the data could have impacted the jobless reading.

Wednesday's unexpectedly strong March quarter gross domestic product reading, which saw economic growth at its fastest pace in over three years, sparked speculation of a possible interest rate rise this year.