Japan is now in recession for the first time since 2001 after the economy shrank by 0.1% in the third quarter.
The world's second-biggest economy previously shrank by 0.9% in the April to June quarter.
Economy Minister Kaoru Yosano said economic conditions could worsen further as the financial crisis deepens in the United States and Europe.
The Nikkei share index fell on opening after the data was released, but later rebounded and closed up 0.7%. The Nikkei has lost a quarter of its value since the beginning of October.