TOKYO (AFP) - Employment in Japan's once-mighty manufacturing sector has fallen below 10 million for the first time in five decades, as a new government vows to stoke the struggling economy.

Official employment data released Friday showed the number of workers in Japanese industry, which fuelled the country's stratospheric rise from the ashes of World War II, slipped to 9.98 million in December.

That is the lowest level since 1961 as firms slash costs and ship manufacturing jobs to lower-cost nations overseas.

Like many developed economies, the manufacturing sector has been hollowed out in high-cost Japan as it struggles to compete with manufacturing powerhouse China and rivals in South Korea and Taiwan.

"During the post-war era, Japan enjoyed significant standing in manufacturing. Gradually it has been reduced as relocation of factories overseas continues," said labour minister Norihisa Tamura.

"We must think about ways to keep manufacturing in Japan," he added.

The decline of manufacturing and that of world-beating giants such as Sony and Panasonic has sparked plenty of hand wringing in Japan.

The deflation-plagued economy remains stagnant, a far cry from the soaring growth that turned it into a world beater in the closing decades of the last century.

Japan lost the title of world's second-biggest economy behind the United States to a rising China in 2010.

The new employment data shows the manufacturing sector has shrunk by about 40 per cent from a peak of 16 million workers in 1992, as an asset and stocks bubble burst ushering in twenty years of anaemic growth.

Manufacturing has fallen from about 27 per cent of Japan's overall labour force in the 1970s to 16 per cent today.