The number of dwellings approved for construction fell 7.6% in October in seasonally adjusted terms, after rising for the past two months, according to the ABS.
The monthly fall was far greater than 1.6% drop forecast by economist polled by Bloomberg and follows an upwardly revised 9.5% rise in September (from unrevised 7.8%) and 23% rise in August.
Dwelling approvals are a forward indicators of future construction activity.
The biggest fall in dwelling approvals occurred in Victoria (-14.2%), followed by Queensland (-7%) and South Australia (-0.1%). Building approvals increased in Tasmania (11%), New South Wales (3.2%) and Western Australia (0.1%).
In the key detaching private sector housing market, approvals fell 1.5% in October while approvals in the more volatile units market fell 18%
Private sector house approvals rose in New South Wales (5.5%) but fell in South Australia (-7.9%), Victoria (-4.5%), Queensland (-2.4%) and Western Australia (-1.3%).
Westpac says private sector house approvals were the "main source of disappointment although the segment continues to follow a strong double-digit uptrend despite the 1.5% fall in October", with Queensland and Victoria both showing more "pronounced weakness across private sector houses than elsewhere".
"Private sector house approvals are showing a vigorous uptrend in WA and steady gains in NSW," says Westpac.
The bank says the main driver of the 18% fall in unit approvals were dwellings in 'high-rise' buildings with 'low to mid-rise' continuing to show a strong uptrend.
The value of total building approved fell 6.7% in October, in seasonally adjusted terms, after rising for two months.
The value of residential building fell 12.9%, while non-residential building rose 6.7%.