More than one million 16-24 year olds in the UK are now out of work, as the country's jobless total hits 2.62m, the Office for National Statistics (ONS) revealed on Wednesday.

The UK now has the highest level of unemployment since 1996, the ONS said, with 8.3% of the economically active population now out of work.

The growing number of young people in long-term unemployment - more than 200,000 have been out of work for more than 12 months - has reignited fears that the UK could be cultivating a "scarred generation" with many individuals who fail to fully connect to the workforce, experiencing a lifetime of reduced wages, lower job security and poorer mental wellbeing.

There were 1.02m people between the ages of 16 and 24 out of work in the three months up to September, up 67,000 since the second quarter. Excluding those in full-time education, the number is 730,000, according to the ONS.

"I think it's a wake-up call to the country," Paul Brown, director at the Prince's Trust, said. "We can't afford to wake up in three years time when the economy grows and find that there are a group of young people who have been left behind.

"Unemployment isn't just a financial problem. It can very badly affect the rest of people's lives."

Speaking to Sky News, employment minister Chris Grayling admitted: "We have a big problem with youth unemployment", but blamed the eurozone crisis for hitting business sentiment.

"They are, I'm afraid, a consequence of what we are seeing in the Eurozone. We've seen a big slowdown in the economy as a consequence of events elsewhere," he said. "The message we're getting is that businesses are moving into a very cautious mode because of concerns about what they're seeing in the Eurozone."

Incentive systems for students, such as the Education Maintenance Allowance, and resources for companies taking on younger workers, such as the Future Jobs Fund, have been cut as part of the government's austerity measures. Funding for youth clubs and charities has also dipped.

The coalition has instead focused a lot of its attention on increasing the number of apprenticeships, but while absolute numbers have increased, research by the Institute for Public Policy Resarch (IPPR) released on the weekend showed that the majority of new apprenticeships were being filled by over-25s.

Under questioning in the House of Commons on Tuesday, Deputy Prime Minister Nick Clegg admitted that the government had to do more.

"I do actually accept that we do need to take more action," he said. "I think it would be a real dereliction of duty if we did not do more to try and make sure that young people are either given a real pathway into training, into education, into further education, into higher education or into the labour market."

Responding to Wednesday's figures, National Union of Teachers (NUT) general secretary Christine Blower said that cuts to education, the loss of the EMA and rising tuition fees were "attacking student life chances, social mobility and economic prospects."

The number of 16-17 year olds out of work has reached 217,000, according to the ONS.

Experts said that the economic downturn has had compounded an existing problem of persistent youth unemployment that began in the early part of the 21st Century.

"It's a trend that certainly started a few years before the recession began, and it's one I don't think that people fully understand," Tony Dolphin, chief economist at IPPR said. "It does seem that somewhere around the early 2000s, businesses became more reluctant to employ younger people, relative to older people. We got down to very low unemployment numbers, and we held those very low unemployment numbers the proportion of young people employed just gradually increased.

"The Labour government didn't really diagnose why the problem was occurring, and just as the current government is doing, threw policy ideas at it."

The recession only made this worse.

"Young people in the labour market are typically the first to be let go in an economic contraction," Steven Kapsos, an economist at the International Labour Organisation said. "When businesses are letting go of workers, it will be those with less experience, less connections, that will be the first to be let go. And then when businesses start hiring again youth are often the last to find a job, for largely the same reasons. They have less experience, they have less formal and informal contacts.

"When you have this group that is disadvantaged and has difficulty breaking into the labour market and finding a decent job, they are the worst hit in a period of low aggregate demand, like we have now."

Ian Brinkley, director of the Work Foundation, warned that the news was likely to get worse.

“With little prospect of a revival of economic growth in the face of contracting domestic demand and a Europe-wide economic slowdown, further job losses and even higher unemployment in 2012 are unavoidable. Unemployment is already at 2.6 million and is on track to reach at least 2.8 million," he said. “These figures will only improve when investors, businesses, and consumers feel confident that an economic recovery is on the way. The Autumn Statement due on November 29 must set out a credible plan for growth, not just public austerity, if confidence is going to be restored.”