Economists polled by Reuters had expected a 1% decline in December after a revised 1.3% drop in November, initially reported as a 0.6% dip.
For the fourth quarter as a whole, total industrial production fell at an 11.5% annual rate.
Compared with December 2007, industrial production was down 7.8%, the biggest drop since September 1975.
The Federal Reserve said output declines were "widespread." Among major market groups, only business equipment increased in December, and that was largely because of a surge in commercial aircraft production following a labor strike.
Capacity utilization fell to 73.6% , which was 7.4 percentage points below its average level from 1972 to 2007.
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Industrial Production
