It means the government has hit its target of reducing by 40% the number of people killed or seriously injured on the roads by 2010, compared with the mid-1990s average.
Transport Secretary Lord Adonis said: "Every death on the roads is a terrible tragedy, but these figures show that every day last year one less person died on the roads than in 2007 and that Britain now jointly has the safest roads of any major nation in the world.
"While this news is encouraging, seven people are still dying on the roads every day and we will continue to do everything we can to prevent these tragedies."
The AA's head of road safety, Andrew Howard, said: "Even taking into account the almost 1% drop in traffic due to high fuel prices and recession, these figures are an excellent step in the right direction.
"If this trend continues the UK will soon restore its position as one of the safest countries in the world."
He added that much needed to be done to cut casualties among groups such as youngsters and drink or drug drivers.
Shadow transport secretary Theresa Villiers welcomed the figures.
However, she said government plans to reduce speed limits from 30mph to 20mph in urban areas with high accident rates, and from 60mph to 50mph on problem rural roads, were not the way forward.
"The government must be careful not to turn back this progress with one-size-fits-all measures that hit all motorists indiscriminately, like a blanket reduction of the speed limit," she said.
Instead, she called for campaigns to target motorists without tax or insurance and novice drivers who are more likely to be involved in accidents.
Last month, the RAC Foundation said the UK's road safety record could be improved further through the establishment of a road accident investigation body.
Tom Symonds reports from one of the UK's most dangerous roads
It said studying why accidents happened could help drive improvements in policy, and road or vehicle design. Ministers are proposing an expert panel be set up to study fatal accident patterns.
The Campaign for Safe Road Design also claims 10,000 deaths or serious injuries could be prevented over 10 years by using better signs, lines and kerbs.
Statistics show the total number of casualties, which includes deaths and both serious and slight injuries, stood at just under 231,000 in 2008 - also 7% down on the previous year.
Despite the overall falls, 124 children were killed on the roads last year - three more than 2007's record low figure in this category. The Royal Society for the Prevention of Accidents described this as "unacceptable".
The number of casualties among cyclists also rose 1%, although there were 15% fewer deaths at 115.
Some 572 pedestrians died, down 11%, while 493 motorcyclists were killed, down 16%.
Peter Rodger, from the Institute of Advanced Motorists, said improvements in both car safety technology and road design had helped drive casualty figures down.
"There's also been a lot of talk about the need for driver improvement which makes people more conscious about the way they drive," he said.
"The main message is how can we keep things going in that direction."
The Department for Transport is currently consulting road users, emergency services, local authorities and interest groups on a new strategy aimed at making UK roads the world's safest.
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