Strength in services production was offset by weakness in primary industries.
Capital Economics Australia and New Zealand economist Kate Hickie also said the economy failed to regain any momentum at the end of a year ago and with net migration past its peak and business confidence remaining low, the recent strength of consumption and business investment won't be sustained.
Statistics NZ said wholesale, retail, rental and real estate services also grew strongly during the period. Activity in the services industries - which accounts for about 66 percent of GDP - grew 1.1 percent in the quarter versus a 0.6 percent increase in the September quarter.
Looking ahead, "we expect growth to remain at a more subdued pace this year, as the new government's policies - particularly around cooling the housing market - are expected to be a drag on activity on balance, at least initially", said Gordon. Falling milk production was reflected in lower dairy manufacturing and dairy exports.
Reflecting strong population growth, StatsNZ said GDP per capita rose by a far smaller 0.1% over the quarter following a 0.2% increase in Q3.
Westpac Bank senior economist Michael Gordon said the economy "appears to have lost some momentum over the course of the previous year (barring any future revisions to the GDP data)", and noted that annual growth peaked at 4 percent in 2016 but slowed to 2.9 percent in 2017. Economists expected GDP expanded 0.8 percent in the quarter and 3.1 percent on the year, according to the median in a Bloomberg poll.
The New Zealand dollar skidded on Thursday after mixed economic growth data cemented bets on interest rates staying at record lows for a long time yet, while the Australian dollar hung around 3-week highs. By contrast Australian growth slowed to 0.4% in the last quarter for an annual rate of 2.4%, down from 2.9% in the September quarter.
But that changed once the Labour-led coalition took the helm in October with business investment holding up, despite some negative sentiment towards the new administration, and a burst of retail spending in the final three months of the year.
"Households ate out more and spent more on groceries and alcohol".
The kiwi dollar fell by 0.25c against the U.S. dollar after the data was released.