Jobless claims in the first full week of January spiked to seasonally adjusted 965,000, a 23 percent increase from the previous week.
The increase in jobless claims follows a December jobs report that showed the economy shedding jobs, putting the recovery of the labor market in reverse.
Economists had expected 800,000 new unemployment claims last week.
"This is bad news for the economy heading into 2021," said Cailin Birch, global economist at The Economist Intelligence Unit.
"The fact that benefits claims are increasing suggests that the economy may lose jobs again in January, as the number of coronavirus cases continues to surge, weighing heavily on businesses."
Birch projected that the unemployment rate, which remained steady at 6.7 percent in December, would not drop below 6 percent in 2021.
Bankrate senior economic analyst Mark Hamrick called the increase in new claims "shocking," and also linked it to the slow progress in fighting the pandemic.
"This reminds us that the economic crisis has not gone away, far from it, at a time when multiple crises have been vying for our attention," he said.
"It hasn’t helped that administration of COVID-19 vaccines has been slow to gather momentum since the pandemic is at the epicenter of the economy’s ills."
Non-adjusted claims saw a similarly large uptick last week, rising to 1.2 million. The number of people receiving Pandemic Unemployment Assistance, a special program expanding benefits to the self-employed and gig economy workers, rose 75 percent to 284,500.
The increase in claims may be due to Congress extending programs past their late December expirations, indicating that some people had simply run out of benefits in recent weeks.
By late December, the total number of people receiving claims had fallen to 18.4 million.
President-elect Joe Biden is expected to unveil his proposal for the next round of COVID-19 relief on Thursday evening. It is expected to extend unemployment benefits and raise stimulus checks to $2,000.