Unemployment will be a key issue in the forthcoming general election
The number of people out of work dropped by 42,000 to 4.8 million, or 11.6% of the workforce, the Federal Labour Office said.
But without seasonal adjustments, the jobless rate rose by 68,000 to 4.77 million, or 11.5% of the workforce.
The figures come just two months ahead of a planned general election.
The ranks of Germany's unemployed often swell in July, as school leavers and trainees who have finished their apprenticeships enter the jobs market.
Companies are also often reluctant to take on new staff ahead of the summer holidays.
Political battleground
The key element for the economy is really the number of new jobs that are being created, and we haven't seen much progress on that front yet
Carsten Klude, MM Warburg
The fall in seasonally adjusted joblessness may point to a recovery in Germany's battered labour market, though economists greeted the figures with caution.
Unemployment looks set to be a major issue in the forthcoming general election.
Chancellor Gerhard Schroeder's ruling Social Democrat (SPD) coalition is preparing to face an electorate angry at recent record levels of post-war unemployment. Earlier this year, five million Germans were out of work.
Opinion polls recently showed the SPD lagging behind the conservative opposition Christian Democrats by up to 17 percentage points.
Trend remains unclear
But economy minister Wolfgang Clement said the latest jobless figures suggested unemployment in Germany was coming under control.
"The process of reduction in unemployment will continue in the coming months and continue more strongly," he said.
Analysts broadly welcomed the adjusted figures, but remained cautious about the general outlook for the German economy.
"Perhaps the worst has passed," said Sandra Petcov, an analyst with Lehman Brothers. "Germany, among the eurozone area, appears to be gaining ground if you look at the most recent indications."
However, Carsten Klude, of MM Warburg, said: "The key element for the economy is really the number of new jobs that are being created, and we haven't seen much progress on that front yet."
Germany's unemployment rate fell by 0.1 percent in July, the Federal Labour Office said.

The number of jobless Germans dropped by 42 thousand to 4.8 million, but without seasonal adjustments, including summer breaks in job training and jobseeker holidays, it grew by 68 thousand and is close to a post-war record. Unemployment is projected to rise by 370 thousand by year end, according to German research institute IAB. 

Labour-market problems remain the main issue of the Bundestag election campaign. Chancellor Schröder's government is blamed for the failure of his social policy reform known as Hartz IV and growing unemployment. In recent polls the ruling Social Democrats (SPD) got 27 percent of the vote whilst the opposition Christian Democrats got 44 percent.