WASHINGTON (Reuters) - Unemployment rates in 363 U.S. metropolitan areas rose in January, and 346 areas reported year-on-year declines in their number of jobs, the Labor Department said on Friday.

Nearly 200 metropolitan areas reported jobless rates of at least 10 percent in January, showing that unemployment problems persist at the local level.

California has been especially hard hit during the recession that began in late 2007, and the Labor Department data showed the state's jobs situation continues to deteriorate, with an overall unemployment rate of 12.5 percent in January.

The three areas with the highest jobless rates in the country, all above 20 percent, were all located in California, the most populous U.S. state.

The Riverside and San Bernardino area of Southern California, along with Detroit-Warren-Livonia in Michigan had the highest unemployment rates for areas with populations of 1 million or more. While Detroit has been hurt by fluctuations in the automobile industry, Southern California has suffered mostly from the bursting of the housing bubble.

The sprawling California metropolis by the ocean formed by Los Angeles, Long Beach and Santa Ana, meanwhile, lost the most jobs over the year, at 248,600.

Rockford, Illinois, had the largest increase in unemployment from a year earlier, of 5.8 percentage points, primarily due to manufacturing job losses, said the Labor Department.

Economists have said that recovery from the recession will happen at different rates in different areas. Two areas in Indiana -- Kokomo and Elkhart-Goshen -- saw their unemployment rates drop the most, both around 4 percentage points, after their rates had increased more than 10 percentage points the previous year.

The largest increase in the number of jobs was in Kennewick-Pasco-Richland, Washington, which gained 3,300 jobs, followed by Ocean City, New Jersey, with 1,900 jobs.

(Reporting by Lisa Lambert; Editing by Leslie Adler)