The 1.3% decline in employment, the biggest quarterly fall since March 1989, caught economists by surprise, with most describing the household labour force data as weak.
This would have consequences in terms of consumer spending and wage growth.
The Statistics New Zealand March quarter household labour force survey revealed a slight rise in the unemployment rate from 3.4% to 3.6%.
ASB chief economist Nick Tuffley said the data suggested "there has been a shift in the economy in the early parts of 2008".
He also warned that combined with other recent gloomy economic data - inflation above 3% and plummeting business and consumer confidence - there was a "risk of the New Zealand economy grinding to a halt".
The Reserve Bank of New Zealand (RBNZ) would want to see evidence the current wave of "doom and gloom" was more than temporary, before moving on interest rates, he said.
"We now expect the RBNZ to hold off until September before cutting the OCR, but that they will cut by 50 basis points."
Statistics New Zealand said those in full-time employment fell 1.7%, driven by 22,000 fewer full-time female employees.
This follows a 31,000 increase in full-time female employees in the December quarter.
Male full-time employment fell 0.6%.
The number of people in the labour force fell 24,000, or 1.1%, to 2.222 million, while a 0.3% increase in the work-age population resulted in a 0.9% decrease in the labour-force participation rate, to 67.7% - the largest decline in the survey's history.
Mr Tuffley said it appeared some workers had left the labour force, either losing their jobs and deciding not to seek others, or were discouraged from looking.
ANZ senior economist Khoon Goh said weakness in the data was broad-based, with not only a fall in employment, but the total hours worked down 1.9%, the biggest quarterly fall since March 1994.
"Given that we typically expect part-time jobs to show weakness first, the considerable fall in full-time employment could be a significant development."
The main job losses were in sectors in which he expected them to occur - wholesale and retail (16,000), business and financial services (12,000) and construction (5000) - what he described as pull-backs following strong employment gains in the December quarter.
Mr Goh said the labour market was a "lagging indicator" but it had turned quicker than expected, indicating that economic activity was slowing fast, and raising the likelihood those sectors could shed further staff.
The fall in hours worked was likely to cause a contraction in the March quarter GDP, and Mr Goh said prospects for growth in the June quarter were not much brighter.
Mr Goh agreed with Mr Tuffley that the RBNZ could ease the cash rate in September, but speculated the bank could move in June.
The market reacted favourably, with 90-day bank bills falling 0.18 points and the NZ dollar falling 1.74c against the US dollar.
