George Osborne is facing growing pressure to take action to tackle long-term unemployment in next month's budget, after official figures revealed that 860,000 people have now been out of work for more than a year.

The shadow chancellor, Ed Balls, accused Osborne of complacency as the latest snapshot of the labour market by the Office for National Statistics showed the unemployment rate stuck at a 17-year high of 8.4% in the three months to December and the number of women claiming unemployment benefits at the highest level since 1995.

The number of people out of work was up by 48,000 on the previous three months to 2.67 million, almost a third of whom have been unable to find work for more than a year.

Two-thirds of the increase in unemployment was accounted for by women, who continue to be hit hardest by the deterioration in the labour market. The number of women claiming unemployment benefits has hit 531,700 – driven partly by government reforms that have forced single mothers to return to the labour market. A record number of people were working part-time as they were unable to find full-time work.

"If we don't act we will pay a long-term price as a society because you can't just get rid of long-term unemployment quickly, we saw that in the 1980s. I fear we are making the same mistake again andI do think the government's got to drop the complacency and start to talk about what can be done," Balls told Radio 4.

The more timely claimant count measure of unemployment, which tracks the number of people receiving out-of-work benefits, rose by 6,900 in January, to 1.6 million.

Jonathan Portes, director of the National Institute for Economic and Social Research, who has called for a public spending boost to kickstart the economy, described the growing toll of long-term unemployed as "the cost of inaction".

"We know that unemployment, especially youth unemployment, has 'scarring' effects; an individual experiencing a spell of unemployment has lower employment probabilities later in life," he said.

Graeme Cooke, associate director of the Institute of Public Policy Research, said the budget should build on the Youth Contract announced by Osborne in his autumn statement last year and launched by Nick Clegg last week. "The Youth Contract should be just a first step. Government needs to guarantee a job for everyone out of work for more than a year. The next priority should be areas of the country experiencing the combination of both high unemployment and a low number of vacancies," he said.

The government and some City economists pointed out the rise in unemployment was the slowest since last June, when the jobs market was deteriorating fast after improving through 2010.

The welfare reform minister, Lord Freud, said: "The latest figures show some encouraging signs of stability despite the challenging economic climate."

Alan Clarke, of Scotiabank, said that if "there was any doubt that the UK economy had turned the corner and that the worst news was in the past, then today's labour report should lay those concerns to rest".

However, with 1.12 million women out of work Anna Bird, acting chief executive of the Fawcett Society, urged the government to respond to "a time of crisis".

Young people are also still bearing the brunt of the downturn, the ONS data showed, with 1.04 million 16 to 24-year-olds out of work in the three months to December, an increase of 22,000 on the previous three months. The unemployment rate among this group is 22.2%.

There is little sign that pay is starting to pick up, with average earnings up 2% on a year earlier, according to the ONS – well below the rate of inflation, which dropped to 3.6% last month.

Separate government figures showed that tens of thousands of unemployed people have been made to work without pay or have their benefits removed for at least 13 weeks.

The first set of statistics on the government's Mandatory Work Activity (MWA) programme revealed that from when the scheme started in May 2011 until November, 24,010 jobseekers were referred to work for four weeks unpaid for 30 hours a week.