The 2.5% fall impacted on overall GDP figures for the UK which just managed to scrape in with a stagnant looking 0.3% of growth.
Construction had returned to growth in the final quarter of 2012, following five quarters of output falls, raising hopes of better times ahead.
But the latest numbers confirm it has lurched back into decline despite Government efforts to use the industry as a lever for economic growth.
Simon Rawlinson, head of strategic research at EC Harris, said: “As a nation we can breathe a collective sigh of relief that the UK has avoided a third technical recession, but the reality remains that growth is exceptionally weak and there are currently very few levers available to drive confidence, investment and growth in the European Economies including the UK.
“Construction will continue to experience very weak demand whilst these conditions remain, particularly with a very tough public spending review coming up.
“However, hopefully we will see the house building, industrial and perhaps commercial sectors start to see signs of recovery this year.”
The figures will increase pressure on Chancellor George Osborne to find more cash to stimulate construction in the forthcoming spending review.
Noble Francis, Economics Director at the Construction Products Association, said: “Illustrating the importance of the sector, had construction output merely been flat quarter-on-quarter, GDP growth would have increased to 0.5%
“Subdued private sector investment, owing to a lack of confidence and certainty in the economy, was a large factor in this fall.
“Our principal concern going forward, however, remains the government’s slow pace of delivery on its policies, hindering real activity on the ground.
“Government announced a £4.69bn capital investment ‘boost’ in Autumn Statement 2011 and a further £5.5 billion in December.
“If the government ensured that these funds for infrastructure and other building programmes were actually invested, it would add an additional 0.8% to GDP. With this the construction industry could then support a sustained recovery for the UK.”