The Commerce Department said sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.
Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November's previously reported 355,000 units.
New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, the department said.
The housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.
It has since been expanded and extended until June this year and while analysts expect home sales to pick up as a result, they reckon the pace will not be as strong as witnessed with the initial tax credit.
The housing market was the main catalyst of the most painful downturn in 70 years and renewed weakness could hobble the economic recovery.
Despite the slump in sales there were a few bright spots in Wednesday's report. The median sale price for a new home rose 5.2 percent last month from November to $221,300, the highest in seven months and the biggest rise since April 2009. Compared to December 2008, the median sale price fell 3.6 percent.
The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December's weak sales pace left the supply of homes available for sale at 8.1 months' worth, the highest since June 2009, from 7.6 months in November.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)