Compared to the third quarter, growth was up 0.6%, beating market expectations of 0.4%.
Household consumption, construction and public spending were the main factors driving the better-than-expected growth.
The strong data comes despite the global commodity slump hitting the country's vital mining and oil sectors.
Australia's benchmark ASX/200 was up 1.5% on the positive news.
"Given Australia is going through the biggest mining pullback in our lifetimes, this is a pretty good outcome," said David de Garis, a senior economist at National Australia Bank.
Analysts also said the stronger-than-expected figure meant further cuts in interest rates were unlikely in the near future.
The Australian central bank has held rates steady since May last year and earlier this week decided to keep its main interest rate at 2% for a tenth consecutive month saying it saw "reasonable prospects" for growth.
However The Reserve Bank governor Glenn Stevens said the bank would be keeping an eye on the country's low inflation rate.
"Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand," he said.
Australians must be feeling pretty smug these days. Despite a collapse in global commodity prices, it has managed to escape recession yet again.
So what are Australians getting right? Well - it may just come down to that "lucky country" clichÃ© we hear about "Down Under" all the time.
There's no denying that as mines have closed, jobs have been lost and that's putting pressure on the government to find new avenues of growth - but don't forget Australia is already a highly diversified economy.
Services like tourism, finance, business, technology and education are major components of Australia's economy and they've benefited from a weaker Australian dollar. The agriculture sector is also seeing renewed interest - check out the reports I did on Australia's agricultural sector here.
Mining has also seen a boost from the lower Australian dollar, because it has meant that Australia's products are cheaper at a time when demand has dropped.
Investments in mining software have helped the industry to remain competitive even in a downturn, and maintain Australia's global share of resource exports.
Australia's economy grew by 3% in the three months ending December 2015, compared to the same period a year ago.