The Australian Industry Group-PricewaterhouseCoopers performance of manufacturing index (PMI) slipped 7.7 index points in November to 32.7 points.
It was the sixth straight month of decline and the lowest level recorded since the survey began in 1992.
The PMI has remained below the key 50 level, which separates expansion from contraction, since June.
All 12 sectors covered in the survey declined, with the sharpest fall recorded in the new orders sub-index, which slumped 14.4 index points, or 37 per cent, to a new low of 24.5 points.
"Recent results reflect an accelerating loss of consumer and business confidence, driven by worsening news on the global economy, falling household wealth, and the weak housing sector," the report, released on Monday, said.
Ai Group chief executive Heather Ridout said the fall in new orders was "alarming".
"Companies are doing a deep dive into their businesses in an effort to cut costs in order to ride out the downturn," Mrs Ridout said in a statement.
"This does not (augur) well and suggests a poor end to 2008 and an equally weak start to the new year."
CommSec chief equities economist Craig James said the November PMI reaffirmed the need for a further aggressive interest rate cut from Reserve Bank of Australia (RBA) at Tuesday's board meeting.
"The Reserve Bank will cut rates by 75 basis points tomorrow, and possibly 100 basis points, as it seeks to front-load the stimulus into the economy," James said.
"The interest rate stimulus may turn out to be excessive, but the Reserve Bank won't die wondering."
PricewaterhouseCoopers global leader of industrial manufacturing, Graeme Billings, said companies were struggling with dampened world and local demand for manufactured products.
"Overall cash flow is likely to remain tight," Billings said in a statement.
"In these conditions, where most markets for products are softening, cost control and profit improvement measures is a key element of short-term business planning to preserve margins."
