All three arms of the military namely Army, Navy and Air Force reported a drop in the number of fully trained personnel, while the Army recorded the biggest fall, the MOD said.
Opposition Labour Party said the government was "running down" the UK military - calling it a "crisis" in recruitment and retention, the BBC reported.
The latest figures showed the Army was more than 7,000 troops short of the government's target of 82,000, and the number of full-time and fully-trained troops declined to 74,440 in July from 76,880 last year, according to the latest data.
Both the Royal Air Force (RAF) and the Royal Navy (RN) also failed to meet their target strength, but their declines were smaller than the Army.
The MOD said the current strength of the RAF was 29,930, compared with the required 31,840, while the strength of the RN and the Royal Marines dropped to 29,090, below the required 30,600.
Despite the decline, the MOD said Britain's armed forces continued to meet all their operational requirements.
The data also showed 13,520 people joined the regular armed forces in the last 12 months, an increase of 1,593 compared with the previous year, whereas 14,880 people left their military jobs over the same period.
The MoD said it has been working hard to improve recruitment, adding that applications to join the Army were at a five-year high, according to the BBC.
The Army raised eyebrows with its recruitment campaign at the start of the year, which used stereotypical images of millennials, including "snowflake", and "selfie addicts", on its posters.
Labour's Shadow Defence Secretary Nia Griffith said that the government was running down the armed forces "year after year" and the numbers were "well below their own targets".
"Ministers are either in complete denial about this crisis in recruitment and retention, or they are actively in favour of cutting the armed forces to these historically low levels," she said.
Meanwhile, the MOD was accused of betraying British troops with plans for "back door" legislation to curb compensation claims by personnel injured when serving the military, since the Ministry wants to impose a "longstop" time period beyond which claims cannot be made, the Times newspaper based in London reported on Friday.
The MOD told the Times the proposed longstop will not prevent armed forces personnel from being able to access the compensation they deserve.
( With inputs from IANS )