This was as a massive decline in output from the strike-hit platinum mining sector triggered the first overall quarterly contraction since a 2009 recession.
The economy had expanded 3.8 per cent in the fourth quarter of 2013.
On an unadjusted year-on-year basis, the economy grew by 1.6 per cent in the first quarter compared with two per cent in Q4, Statistics South Africa said.
The 24.7 per cent decline in mining output was the biggest quarterly contraction since 1967. The platinum strike now in its fifth month has halted mines that normally account for 40 per cent of global production of the precious metal.
Economists polled by Reuters had expected an overall quarter-on-quarter contraction of 0.1 per cent, while forecasting year-on-year growth of 1.9 per cent.
The rand fell nearly one per cent to a session low of 10.44 against the dollar.
Africa's most advanced economy has struggled to recover from a recession five years ago, partly due to industrial action in key sectors such as mining and manufacturing.
The mining strike is the costliest and longest in South Africa's history.
The Reserve Bank kept interest rates steady at 5.5 per cent last week - even though it is in a tightening cycle - to try and support faltering economic growth.
(READ MORE: S.Africa keeps rates held at 5.5%)
The bank slashed its 2014 growth forecast to 2.1 per cent from 2.6 per cent.