The severe winter weather which hit the UK during December is partly to blame but the ONS said even if the weather impact had been excluded, activity would have been "flattish".
The Q4 contraction follows growth of 0.7% in the previous three months and 1.1% in the second quarter of 2010.
The figures are set to raise concerns over prospects for the economy, with large public spending cuts coming into effect in this year.
Responding to the figures, Chancellor George Osborne said the government would not change its austerity programme.
"These are obviously disappointing numbers, but the ONS has made it very clear that the fall in GDP was driven by the terrible weather in December," he said in a statement.
"There is no question of changing a fiscal plan that has established international credibility on the back of one very cold month. That would plunge Britain back into a financial crisis. We will not be blown off course by bad weather."
