Chancellor Gerhard Schröder's hopes of re-election next month received a further set-back yesterday after German unemployment hit the politically sensitive four million mark.

Unemployment hit a three-year high of 9.7 per cent last month with 4,046,900 people out of work. That's not far off the number of unemployed at the end of the Kohl era and a long way from the 3.5 million unemployed that Mr Schröder promised voters in 1998.

"The figures are not good," said Mr Schröder in Berlin yesterday.

Next month's figures, the last before polling day, are unlikely to show a dramatic improvement and time has run out for Mr Schröder's government to cut dole queues.

Instead, the Chancellor has put his faith in a government commission on unemployment that will next week present its proposals to reform the employment market.

Mr Florian Gerster, head of the Federal Labour Office, said that Germany's economic recovery, which had seemed relatively robust in spring, had been hit by a "double dip".

"Economic growth is too weak and unstable to revive the labour market," he said. "The seasonally adjusted figure reflects an unfavourable cyclical trend."

The unadjusted number of unemployed last month was up nearly 93,000 on June and rose nearly a quarter of a million year-on-year. The seasonally adjusted unemployment figure, which was already above four million, increased against last month by 8,000, significantly lower than the predicted rise of 25,000.

Conservative challenger Mr Edmund Stoiber said the figures were "a devastating final balance sheet for Mr Schröder".

A new survey for Stern magazine shows that Germans in eastern states are three times as worried about unemployment as western Germans. On average, 7 per cent of Germans said they were worried about losing their jobs in coming months.

The survey shows support for Mr Schröder's SPD party is stuck at 35 per cent while the conservatives are ahead with 42 per cent. Support for Chancellor Schröder continues to drop, down four points to only 38 per cent.