The National Bureau of Statistics said it was the first such decline in the manufacturing PMI since June 2013.
Any number over 50 on the PMI index denotes expansion while any number below that denotes contraction.
All major PMI items declined in December, indicating downward pressure on the economy, said Zhang Liqun, analyst with the Development Research Center of the State Council, told the official Xinhua News Agency. He said the December figure reflected the fall in market demand as enterprises remained cautious about the future market. He said China's industrial growth and export growth may drop in the future.
The Wall Street Journal said the December index was below its economists' forecast of 51.2 percent, adding rising wages and a stronger currency have hurt China's exports and affected the growth in the manufacturing sector.
The report said the Chinese yuan appreciated about 3 percent against the U.S. dollar last year even as other Asian currencies fell.
"Exports are coming down to a lower level, and won't be a big driver of growth going forward," said Chen Xingdong, chief China economist at BNP Paribas, told the Journal. "Exporters experienced quite a difficult year last year."