Previously the simplification of Chinese characters and education campaigns launched by the government had helped to steadily raise literacy levels among adults.
Gao Xuegui, an education ministry official who focuses on illiteracy, said the main reason for the U-turn was that many young rural poor were dropping out of school in order to find work in the cities, the China Daily said reported.
"The situation is worrying," he said. "Illiteracy is not only a matter of education, but also has a great social impact."
Migrant workers in China's urban centres do not have access to public education, healthcare and other basic social services.
Gao said another reason for the drop was a lack of adequate funding, and the fact that earlier successes in fighting illiteracy had led some local governments to abandon their literacy programmes.